Market Insight

NBCUniversal launching new streaming service in 2020

February 12, 2019

Ryan Doherty Ryan Doherty Research Analyst, Advertising, IHS Markit

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Comcast-owned NBCUniversal has announced plans for a hybrid online video service that will incorporate both an ad-supported tier and a consumer-paid subscription. It is set to launch in the first quarter of 2020. The company says the service will be available to Comcast and Sky customers implying it will be available in the US, UK, Ireland, Germany and Italy. In addition, it will be available to customers of rival pay TV services from Charter, AT&T and Dish.  

Comcast has stated that the core target for its service will be pay TV subscribers and Sky customers, meaning that the focus of the service is more of a “TV Everywhere” (pay TV multiscreen) offer than a standalone direct to consumer subscription, although the latter will be offered for those who do not have a pay TV subscription.  

Our analysis

NBCU’s decision to refine and extend its existing TV Everywhere services, with an emphasis on advertising is a notable tick where many of its peers have chosen to tock by launching subscription services (e.g. CBS All Access, ESPN+, Disney+, and Warner Media). The move is not without precedent though. In the same week as NBCU’s announcement, Viacom acquired ad-supported service Pluto TV while Amazon has been increasing its involvement with ad-supported online video, launching ad-supported movies under the Freedrive brand in January 2019.  

On paper at least NBCU is well placed to make a big push into online advertising. It has significant ad sales expertise, some of the most viewed content on TV and a deep library while the technical side stands to benefit from Comcast’s ad tech unit FreeWheel, as well as cross selling with Comcast’s broader initiatives to drive addressable TV advertising.

However, to date NBCU has not really capitalized on these assets. The company has been delivering a TV Everywhere service in the US for many years and advertising revenue has continued declining as online efforts have failed to make up for the short falls from traditional TV. 2018 was a blip driven by record political ad spending, the NFL’s Super Bowl LII, the 2018 Olympics and the FIFA World Cup. By contrast NBCU’s advertising revenues declined 13.0% to $9.1bn in 2017, its lowest level in five years. Over the same period online video ad revenues have been increasingly dominated by YouTube and Facebook.

NBCU’s new initiative seeks to address this in a number of ways:

  • A lower ad load than the current service to attract audiences that are put off by the volume of ads
  • The ability to leverage truly premium rights in terms of audience popularity and advertiser interest; the service it is expected to launch shortly before the 2020 Olympics and NBCU has a history of making this content only available to viewers who have authenticated TV Everywhere viewers
  • Greater reliance on targeting and delivering measurable slots (in this context the decision to make the new service TV Everywhere looks as much like a feature to get reliable addressable data as a means to preserve carriage fees while leaving its parent’s core business intact)
  • Brand safe environment; unlike the big internet platforms NBCU is in a position to guarantee brand safe contexts to advertisers

Taken as a whole, this can be seen as a bet that the major online platforms are effectively undervaluing video advertising, and that done right traditional content paired with the right targeting and measurement should be able to generate higher revenue. Long term this remains questionable as the great promise of addressable advertising is that, brand safety issues aside, the context that ads appear in becomes less important than reaching the right audience. If this does prove to be the case then NBCU may struggle to articulate much of an advantage over the internet-native platforms, as ultimately it will be many of the same audiences that are being reached.

An ad-free subscription tier will be accessible for a reported $12 per month, keeping it in line with the price of Netflix and Hulu’s ad free tier. However, the lesson from online services where much or all of the content is available via pay TV is that adoption is generally fairly low. Based on current announcements the closest proxy for NBCU’s offer is CBS All Access, a service that has struggled to gain customers and it is less than half of NBC’s proposed price. At the other end of the spectrum HBO only had around 5 million online customers in the US at the end of 2017 (AT&T did not publish numbers for 2018), because much of the demand is covered under the auspices of a pay TV bundle.

 

Geography
USA
Organization
Comcast NBC NBC Universal NBCU
Research by Market
Media & Advertising
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