Fitch: Video Disruption Favors Content Owners

Oct. 13, 2016
According to Wall Street analyst firm Fitch Ratings, increasingly fragmented audiences resulting from the rise of on-demand video content ...

According to Wall Street analyst firm Fitch Ratings, increasingly fragmented audiences resulting from the rise of on-demand video content continue to disrupt traditional media models, presenting both risks and opportunities for media and entertainment companies. Fitch believes content owners are best positioned to capitalize on the paradigm shift as demand for high quality content is expected to remain strong across the board.

"Traditional media platforms aren't dead, but evolving," said David Peterson, Fitch's senior director, U.S. Corporates. "Relevance will be determined by platforms that can capture large audiences with compelling content, target them specifically, and measure their success."

In the United States and Europe, sports content is king. Live sports programming remains one of the few opportunities for broadcast and cable networks to generate large viewing audiences. Although sports license fees are already high, making significant profits difficult, Fitch believes they will continue to rise as sports remains one of the last segments to remain "appointment television" and resist the shift to on-demand.

With time-shifted, on-demand content growing in popularity, Internet-based, or over-the-top (OTT), video distribution now represents the fastest growing method of video content consumption. Traditional cable networks have responded to increased competition by launching their own OTT services like CBS/Showtime, HBO, DISH Network's Sling TV, and Hulu, which is owned by Disney, Twenty-First Century Fox, Comcast and Time Warner.

As digital and mobile offerings become more integral to growth of the overall media landscape, the ability to measure audiences and ROI are increasingly important for differentiation. While new measurement tools have been slow to deploy and advertiser confidence in them remains low, the shift is inevitable, Fitch says. In the meantime, partnerships between digital platforms and measurement platforms, like YouTube's Nielsen and comScore deal, are expected to continue.

Trends in advertising spending continue to be a bellwether for the sector's operating performance. Fitch expects ad revenue growth will slow in the near term, likely not rising above GDP growth (1%-2%). Advertising dollars will follow broader trends in the industry, like the shift to digital and mobile platforms and to more measurable and targeted mediums.

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