Pay-TV Will Dip To 38% Of U.S. Homes By 2027 As Exodus Continues; Streamers Facing Saturated U.S. Market, “Tectonic” AVOD Shift – PwC Forecast

By 2027, the U.S. television industry will see $30 billion less annually from traditional subscription and advertising revenue than it did a decade earlier amid ongoing cord cutting, according to a new forecast by PwC published today.

The rate of subscriber decline in the traditional TV bundle hit a milestone in the third quarter of 2022, when the number of pay-TV households fell below half the total number of U.S homes for the first time.

By 2027, the firm’s Global Entertainment & Media Outlook 2023-2027 (which also broke U.S. numbers separately) predicted, millions more U.S. homes will have walked away, reducing total penetration to 49.9 million — down from almost 100 million as recently as 2016 — which means pay-TV will be present in just 38% of total U.S. homes.

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The numbers reflect a years-long trend that’s seen a forced pivot by traditional media players to streaming, following first mover Netflix and others over the top.

The transition is proving painful as streaming costs and red ink has ballooned. A difficult economic climate with high inflation now has most streaming services offering (or about to) a version with advertising. This entire shift is extremely delicate, since traditional television, albeit declining, is still what provides the cash to fuel streaming expansion.

Revenue from the OTT market will grow to $57 billion this year from $49 billion in 2022. And it will hit $75.5 billion in 2027, PwC predicts. OTT advertising revenue will grow more quickly than subscription with the numbers reaching, respectively, $33.4 billion and $35.7 billion that year (from an estimated $21.8 billion last year and $29.5 billion this year.)

“The biggest tectonic move continues to be the rise of ad-supported streaming. AVOD will be the main driver of growth in the US OTT sector across the forecast period,” it said. Revenue increasing at a 14.2% CAGR – well ahead of SVOD’s increase at a 6.1% CAGR – and growing its share of total revenue from 34.8% in 2022 to 44.3% in 2027.”

The U.S. remains the focal market of the global streaming wars, “But the forecast period highlights the increasing saturation of the US market and the future commercial challenges that pose for pure-play OTT and traditional cable and TV companies in the sector,” PwC said.

The 2027 total U.S. OTT video revenue reps only 4.3% year-on-year growth from the year before, just one-fifth the rate seen at the start of the forecast period in 2022, and a fraction of the 35.3% seen in 2020 at the height of the pandemic when coronavirus lockdown restrictions created the perfect conditions for record-setting subscriber growth, PwC noted.

“The biggest tectonic move continues to be the rise of ad-supported streaming. AVOD will be the main driver of growth in the US OTT sector across the forecast period,” it said. Revenue increasing at a 14.2% CAGR – well ahead of SVOD’s increase at a 6.1% CAGR – and growing its share of total revenue from 34.8% in 2022 to 44.3% in 2027.”

The report also highlighted connected TVs, which PwC said will continue to reshape media.

It expects smart TV advertising to hit $21.3 billion in revenue in 2027 off a five-year compounded annual growth rate of 13%.

This year it puts the number at $14.3 billion vs $11.5 billion in 2022 (which was up from $8.5 billion the year before) – “representing a significant shift in media dollars.”

The CTV category comprises revenue from advertising delivered over the Internet to smart TVs, media streamers, games consoles and connected set-top boxes, and includes premium ad-supported services as well as FAST platforms, or free ad-supported streaming TV, led by aggregators like Pluto TV.

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