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Marcus Johnson (00:00):

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(00:22):

Hey, gang. It's Monday, August 18th, Paul, Danny, and listeners. Welcome to Behind the Numbers, an eMarketer video podcast made possible by Awin. I'm Marcus, and I'm joining you from our New York studio, and for today's episode, we have two people joining us. We have VP of Content, living the good life up in Maine, is Mr. Paul Verner.

Paul Verna (00:41):

I think you're living the good life in New York and everywhere else you go, but thank you.

Marcus Johnson (00:46):

Not while I'm in New York because as Danny can attest, Senior Editor living the fight to the death to get off the subway before people force their way on life in New York, Danny Konstantinovic.

Danny Konstantinovic (00:58):

Hello. Very happy to be here and not in the sweltering heat. It's the dog days over here.

Marcus Johnson (01:04):

Oh yes. I'll be here briefly and then leave again, but I'm glad to be here in the studio hanging out with Lars and Danny who are behind the scenes making this all possible on the production team. Thank you to those two gents. Today's fact, so my Dad's working in New Zealand at the moment on a project, so I dug up this fact about New Zealand because of that. Although he doesn't listen to the show, it's not really for him. I'll tell him-

Paul Verna (01:31):

We can talk about him freely?

Marcus Johnson (01:32):

... tell him this one later. You can, yeah.

Danny Konstantinovic (01:34):

Yeah. Any grievances you want to air out-

Marcus Johnson (01:36):

Did you ever... How long do you-

Danny Konstantinovic (01:38):

... from childhood?

Marcus Johnson (01:38):

... should that just be the whole show? He doesn't even know what company I work for. For years he would just tell people I worked for The Economist, which is cool. I wish. Yeah, I wish I did at one point. Anyway, New Zealand is the first country to see the day's first sunrise, which is quite... You know how you see Australia celebrating New Year's first and then on TV and then, obviously, other people because they're ahead of us in time. Well, they, New Zealand specifically, a town called Gisborne or Gisborne, I don't know, they're the first place to see, first country, to see the sunrise. Technically, Caroline Island in the Pacific is the first place to get the sunrise, but it's not a country. I think it's quite magical isn't it, knowing that you're seeing the first sunrise.

Paul Verna (02:31):

Well, here in Maine we see the first sunrise in the U.S.-

Marcus Johnson (02:35):

Oh, that's true.

Paul Verna (02:35):

... just saying.

Danny Konstantinovic (02:35):

That's true.

Marcus Johnson (02:36):

Yeah. How is it?

Danny Konstantinovic (02:39):

Same.

Paul Verna (02:40):

I could not tell you because I've never been a sunrise person.

Marcus Johnson (02:43):

Yeah, me and-

Paul Verna (02:44):

The closest I get to seeing the sunrise is if I'm still up, not because I've gotten up early.

Marcus Johnson (02:49):

Yeah.

Paul Verna (02:49):

I'm still up late.

Marcus Johnson (02:50):

Hello. Paul, what line of life are you living? Me and Danny Caridi, who's running production for us, we would talk about not being morning people, unless you're jet-lagged, for the one or two days when you're jet-lagged you can-

Paul Verna (03:02):

Yes-

Marcus Johnson (03:02):

... pretend to be a morning-

Paul Verna (03:03):

... exactly.

Marcus Johnson (03:03):

... person, and then it's all gone. The last inhabited place on Earth to see the sun set, if that's more your speed, is American Samoa. Anyway, today's real topic, have the scales finally tipped in streaming's favor?

(03:21):

News and sports were childhood friends of linear TV, but then news and sports went off to college and started hanging out with their new friend streaming, and ever since linear TV has been feeling its old friends have been slipping away. That may have recently gone up a gear on the one hand. Late-night TV, which is where a lot of people get their news through a comedic lens, took another hit. "The Death of The Late Show is the Canary in a Linear Coalmine.", writes Dave Dembowski in a guest piece for Adweek. He suggests that it's finally at the tipping point we've been talking about, saying today's viewer has an infinite number of on-demand content choices, and The Late Show is not the most appealing option. He argues that this isn't a Stephen Colbert thing or even a late show thing. It's a linear broadcast thing. Paul, do you agree that the death of The Late Show is the canary in the linear coalmine?

Paul Verna (04:20):

I don't think it is a tipping point for linear TV. I think there are many other tipping points that have been we've seen coming for a long time, so I don't agree with that premise. I think what happened with The Late Show is more endemic of the media landscape itself or actually political alignments and the business priorities of Paramount than actually an illustration of linear TV, but if we want to look for tipping points-

Marcus Johnson (04:59):

Mm-hmm, and we have.

Paul Verna (05:00):

... as far as there's so much. One thing I would point to is so YouTube for the past several months has been at the top of Nielsen Gauge's index of the most watched sources of entertainment on streaming or linear. It's the first time this has happened consistently for a period of several months. Disney has generally been at the top of that list since Nielsen Gauge started. I think it was mid-2023, so that I would definitely call out as a tipping point. We've talked before about paid TV versus non-paid TV viewers, so that has also-

Marcus Johnson (05:40):

Yeah-

Paul Verna (05:41):

... you know, that threshold has been crossed.

Marcus Johnson (05:42):

... and with cable households, yeah. Below 50% for a while now. That Nielsen number, actually I looked at that as well, but I didn't look at specific players. I was looking total streaming, according to their Gauge, scales tipped in streaming's favor in May. Their data shows that streaming was half a percentage point ahead of linear that month at a count of 44.8% to streaming versus 44.2%, so a fraction above to linear. The gap was already by June, so that was May, by June it's widened to four percentage points from 46 for streaming, 42 for linear already.

Paul Verna (06:22):

The YouTube data that I cited, which of course, is related to the top-line streaming versus-

Marcus Johnson (06:27):

Exactly.

Paul Verna (06:27):

... linear, that gap between YouTube and Disney has been widening also since, I think, February, from February to, I think, June is the last month we have data for. I think by now it's a pretty unmistakable trend, so I would characterize that as a tipping point. I mean, I'm not discounting the significance of the Colbert show being suddenly canceled, and I think there's a lot to talk about when it comes to late night, and I like the way you framed it, Marcus, where you talked about linear TV had some friends that have deserted it. Yeah, I think sports and news and now late night is going to be the next friend to kind of ditch linear and leave them in a ditch.

Marcus Johnson (07:18):

It's strange, Danny, because normally shows see their ratings fall and then they get canceled, but Late Show was top of the charts. The audience of over 2.4 million people, the highest rated late night talk show, doubled the audience of The Daily show on Comedy Central, but it had been struggling. It was unprofitable still despite those numbers.

Danny Konstantinovic (07:41):

Yeah, I think I also want to push back against the canary in the coal mine read on the Colbert cancellation. I think, like Paul said, this is a symptom of something that's been building for a long time. I think the political questions around the Paramount-Skydance merger are definitely interesting. I mean, the timing of the Colbert announcement came days after he called a settlement of a lawsuit related to 60 Minutes a bribe to the Trump Administration, so there is a lot of speculation that this was sort of a way to secure the merger agreement or win political favor.

Marcus Johnson (08:26):

Yes.

Danny Konstantinovic (08:28):

I suppose it's certainly possible. I do think, though, that even though the Colbert Late Show, I almost said The Colbert Report, was leading the pack in terms of late-night viewership. I think the niche that late night fills for a lot of viewers has been eaten into by so much free content, especially post-COVID. If you want to see interviews with celebrities, there are so many places now where you can do that on YouTube, on Instagram, with influencers perhaps moderating these debates who consumers might feel a closer kinship to-

Marcus Johnson (09:18):

Well, that-

Danny Konstantinovic (09:18):

... than-

Marcus Johnson (09:19):

... that was part of the point... that was one of the points from the piece, which was saying late night isn't a social media-friendly. It's not as shareable as something like The Daily Show. The Daily Show is still a late-night type of show, but it is more snackable.

Paul Verna (09:34):

Mm-hmm.

Danny Konstantinovic (09:34):

Yeah, and I think you've seen a lot of these late-night-esque shows experiment with what does a digital content distribution strategy look like. The Daily Show example that's raised in the Adweek article, I think, is a great one. They have done a very good job at clipping certain parts of the show and making it very shareable, and the writer noted that that contributed to a big jump in viewership, especially among young viewers.

Marcus Johnson (10:04):

Yes.

Danny Konstantinovic (10:05):

I thought that was very interesting, and I think you've also seen similar things happen with a show like Last Week Tonight on HBO with John Oliver, which had a pretty public... I'm not sure what the word I'm looking for here is, but I guess dispute between Oliver and Warner Bros. Discovery about how to distribute the show on YouTube to try and get it to reach more people. I think when you see stuff like that, that's indicative of companies really looking to try and throw something at the wall, see what sticks, figure out a strategy for this legacy entertainment format in real time.

Marcus Johnson (10:45):

Yeah. Yeah, I mean, I wonder if this just all goes away? Or do these shows pop up on streaming services to be watched differently? The late-night model we mentioned, it's been struggling. The ratings were good, but in terms of money, if you wind the lens, CBS's late-night shows in 2018 made about 440 million in ad revenues. Last year, that number had been cut in half. From 2018 to 2024, according to Guideline, ad revenues for CBS's late-night shows been cut in half. I think I agree with you guys. We've seen other canaries in the coal mine. Conan left his 11:00 PM show in 2021. CBS ended The Late Late Show after James Corden stepped away. NBCUniversal cut The Tonight Show down to four days a week last year. Does this format just move over? Do these hosts just pop up in streaming land down the road?

Paul Verna (11:42):

As it is, I think the whole late-night viewing experience is shifting. Danny, you mentioned John Oliver. I think SNL is a case in point where the idea of like staying up till 11:30, and I know I just said I'm a night owl, but I don't like to stay up and watch these shows in real time anymore. I used to do that. I used to do it with Letterman, I used to do it with Jimmy Kimmel and SNL. I think now I tend to just watch some of the highlights, the bits that I want to see the next day or whenever.

(12:20):

Media outlets like The New York Times are always condensing like what happened on late night last night. I think there's so much of that content that it really dilutes that core experience. Plus, I think Gen Z and Millennials, they're really not into appointment viewing anyway, so I I think the bottom line is the content is valuable, but not in the current late-night type of appointment viewing format. That's why, obviously, these networks are not making a lot of money from these shows, so it's one more model that needs to be reinvented.

Danny Konstantinovic (12:56):

Yeah, with regards to the question of whether late night will survive the transition to digital, a little more uncertain. I mean, there's not a great example right now of a show, well, I suppose The Daily Show is an example, but of the classic late-night format. I don't think there's a great example of a show that's made that transition. Conan O'Brien was brought up later, someone who left the late-night talk scene and that has been replaced with a podcast, so I think that if you do see-

Marcus Johnson (13:26):

John Mulaney, maybe-

Danny Konstantinovic (13:29):

... this-

Marcus Johnson (13:29):

... is his-

Danny Konstantinovic (13:29):

... oh yeah, yeah-

Marcus Johnson (13:30):

... show a talk show?

Danny Konstantinovic (13:31):

... that's true.

Marcus Johnson (13:31):

But very few-

Paul Verna (13:31):

[inaudible 00:13:32].

Marcus Johnson (13:32):

... episodes-

Danny Konstantinovic (13:32):

[inaudible 00:13:33].

Marcus Johnson (13:32):

... though. I don't think it's... It's very few episodes compared to something like late night, which is done all the time.

Paul Verna (13:39):

Mm-hmm.

Danny Konstantinovic (13:39):

Yeah, but maybe that's a benefit. I mean, to Paul's point about young people not being into appointment viewing, maybe with regular episodes there's more of an opportunity to make an event out of it that people will-

Marcus Johnson (13:50):

Yeah-

Danny Konstantinovic (13:50):

... be interested in.

Marcus Johnson (13:51):

... good point.

Danny Konstantinovic (13:52):

I think appointment viewing on a nightly basis is especially tough for younger consumers. I think that's something they are really not clocked into, but yeah, I think that if late night does make this transition, I think the visual staples like how we view late night I think is going to change super dramatically. There are just so many other successful formats that are in that space that are way cheaper to produce, so I think the big variety show extravaganza is probably on the way out-

Paul Verna (14:30):

Yeah.

Danny Konstantinovic (14:30):

... in my opinion.

Paul Verna (14:31):

Yeah. Agreed.

Marcus Johnson (14:33):

That's the news side of the coin. Let's talk about linear TV's other friend, sports. In a blockbuster deal, ESPN is set to acquire the NFL Network, watched by 50 million households, and other National Football League media assets, including the linear rights to the league's popular RedZone channel, in a deal that will see the NFL get a 10% equity stake in the all-sports network. An ESPN statement noted the NFL network will be integrated into ESPN's upcoming D-to-C streaming product that launched this week for $30 a month, and it will continue to be available on traditional pay TV providers. ESPN also gets the NFL's Fantasy App to merge with its existing one. Danny, in an article you described the ESPN-NFL agreement as a landmark deal, so what's your biggest takeaway from this agreement?

Danny Konstantinovic (15:21):

Yeah, I think this is a super interesting agreement. The first thing that really jumps to mind for me out of this is years down the line, the current distribution of NFL streaming rights is going to be re-examined. The contracts with YouTube and Amazon and whoever else are going to expire and the NFL is going to have to drop a new pie for how they want to split up the NFL. If they have an equity stake in ESPN, that's a huge incentive to give ESPN a favorable package, and it deepens the relationship between Disney and ESPN, or Disney and the NFL, excuse me. Years down the line, I think Disney is poised to win big time in NFL rights bidding wars or negotiations or what have you. However it is-

Marcus Johnson (16:15):

I love this take from you.

Danny Konstantinovic (16:15):

... you're talking about it.

Marcus Johnson (16:15):

Yeah. You say power swinging back into Disney's hands, and you point out that we're not too too far away. Actually, it's 2026, and so by that time you're looking at four years until the Sunday Ticket, then a couple years after that until Thursday Night Football comes up, so soon-ish, quite soon in TV rights land.

Danny Konstantinovic (16:35):

Yeah.

Marcus Johnson (16:36):

Paul, biggest takeaway?

Paul Verna (16:38):

The way I described it in a couple of media interviews I did after the news broke is that Disney is managing this transition from linear to digital a lot more effectively than its direct competitors, and it's actually putting the likes of YouTube and Amazon on notice that it's in it for the long haul. I think, to Danny's point, when those contracts come up for renewal with this digital-first companies, it might be a different conversation with Disney more embedded into the mix. I think that it's interesting because here we're talking about the death of linear.

(17:26):

Yes, this is another one of those tipping points where linear is kind of like fading into the background because really what we're talking about is a deal that is all about the ESPN D-to-C service. Yet, we're also talking about a traditional media company. I think that the way Disney is trying to carefully manage itself out of linear into digital should be a playbook for other companies, not that a Paramount of a Warner Discovery or even an NBCU is necessarily in a similarly strong position to do that, but it's interesting that Disney has gone in this direction. All those other companies have been either spinning off their linear assets or merging or doing other big breaks with what's been going on up until now or how they've run their businesses up until now, where I think Disney seems like it's making a smoother transition, and this NFL deal is a big part of that.

Marcus Johnson (18:32):

Yeah, the brand helps massively. ESPN being a place where people will know that's where I go for sports, just for sports, and folks seem ready to stream sports on ESPN properties. Danny in your piece, you had this chart that folks who are watching can see on the screen right now used in your article, Danny. The streaming service U.S. sports fans prefer most for streaming live sports is Amazon Prime video, 29%. Then, ESPN+, 26% right behind it, according to 2024 CivicScience data, and quite far ahead of some of those other folks, Peacock with 20, Max with 14, and, et cetera.

(19:08):

Paul, how likely is this to get approved, though? It does need approval from NFL owners and government regulators, as The Wall Street Journal piece citing Guggenheim Securities analyst Michael Morris saying, "The league being a part owner in one of its distribution partners should raise the question of whether that entity is getting favorable treatment relative to other networks and streamers that air games." Is this a done deal in your opinion.

Paul Verna (19:34):

It's not a done deal, but I think we are in an era where regulatory approval is that the bar is lower, and it really comes down to how Disney is positioning itself politically, and again, I think it's another thing that Disney has done well is try to thread that needle. In terms of the NFL owners, I don't think that there are going to be any major issues because for them it really just solidifies a relationship that's been ongoing for decades. I think if we were talking about a 30 or 40% stake, it would be a different-

Marcus Johnson (20:19):

Hmm-

Paul Verna (20:20):

... conversation-

Marcus Johnson (20:20):

... interesting.

Paul Verna (20:21):

... but at 10%, it does raise some of those flags, but I don't think the NFL owners are going to object.

Marcus Johnson (20:28):

Yeah. Danny, where do you land?

Danny Konstantinovic (20:30):

I agree. I think that if the stake was higher, maybe people would or regulators would turn a more wary eye, but like Paul said, I think that the regulatory environment right now is ripe for this kind of thing, so even if there are legitimate questions about fairness of competition like when these rights deals do come back on the table or even just about this deal itself. If you're Disney, if you're the NFL and you want to ink a relationship like this, now is the time to have as few roadblocks as possible, so-

Marcus Johnson (21:04):

I wonder if-

Danny Konstantinovic (21:04):

... I'm sure-

Marcus Johnson (21:04):

... yeah-

Danny Konstantinovic (21:04):

... [inaudible 00:21:05].

Marcus Johnson (21:05):

... I wonder if this is that? Paul, I think one of the pieces you were cited in, they were talking about this being a playbook for other leagues and networks to say, "We'll take a slice of your league for the rights to stream on said platform," so maybe we'll see other baseball, basketball out of this.

Danny Konstantinovic (21:30):

This in the more short term, I guess, something that also struck me as interesting about this deal was it came amid a bunch of upfront ad commitment results from TV networks and streaming companies, including Disney. A lot of these companies, again, including Disney, did not see a lot of ad spend growth during this upfront period. I think lack of a major tentpole sports property, it's probably a big part of that, but I think a lot of existing budgets also went to NBCUniversal this year because next year they have the Olympics. They have the Super Bowl as well.

(22:15):

Those are two enormous tentpole events to attract a lot of advertising spending, but Disney's results kind of raise some concerns about their position in the sports streaming market, and then this news comes out two days later. I think it really cements them as, like Paul said, a company that's in this for the long haul. They're not going to easily ceded territory here.

Marcus Johnson (22:38):

Final thing for me with regards to whether this is a done deal, there was another conflict of interest pointing out from Joe Flint of The Journal saying that, "There's one potential wrinkle here, which is the ESPN's NFL journalists and commentators will now be covering a league that owns a stake in its employer, ESPN." John Casillo of Forbes saying, "ESPN stomps out descent among its own talent, pointing to a 2014 incident where the network suspended sports commentator Bill Simmons for his critical comments about the NFL Commissioner Roger Goodell." We shall see. That's all we've got time for today's episode. Thank you so much to my guests. Thank you first to Danny-

Danny Konstantinovic (23:15):

Thank you. Always a pleasure.

Marcus Johnson (23:16):

... and of course, to Paul.

Paul Verna (23:17):

Always a pleasure.

Marcus Johnson (23:18):

Yes indeed, gents, and thanks to the whole editing crew and to everyone for listening in to Behind the Numbers, an eMarketer podcast made possible by Awin. Subscribe and follow, and please do leave a rating and review if you have a moment. You can join me Wednesday as I guest host The Reimagining Retail Show again, speaking all about retail partnerships.