As a result of social distancing at home, consumers are spending more time online to virtually connect with others and stream entertainment. Alongside this shift in consumer behavior, industries are also adapting to the knock-on effects of the pandemic. Here, J.P. Morgan Research examines how at-home media consumption has changed since the outbreak.
Non-stop news
Over the past few months information on the impact of coronavirus has unfolded at a dynamic rate, causing a sense of urgency to absorb as many headlines as possible – as often as possible. J.P. Morgan Research assumes the consumption of news coverage is at unprecedented levels across the internet and media sectors.
For example, as users continue to look to social media for real-time information, Twitter recently announced that for Q1 2020, the average total of monetizable daily active users reached approximately 164 million, which is up 23 percent from last year. “The heightened news cycle tied to COVID-19 has significantly driven Twitter’s outsized number of daily active users beyond what we would typically expect for the first quarter,” says Doug Anmuth, Head of J.P. Morgan U.S. Internet Equity Research.
Cable news channels have seen their ratings double over the past month, while The New York Times has also experienced record levels of engagement that is boosting subscriber levels beyond expectations, particularly with digital subscription revenue growth in the high teens. The uptick applies to television genres beyond the news and can be attributed to newly captivated at-home audiences. “Overall, we have seen a 10-20% growth in ratings for a majority of broadcast shows, which is atypical this time of year,” says Alexia Quadrani, Head of U.S. Media Equity Research. “Ratings usually drop once Daylight Savings Time arrives, since people prefer to spend time outdoors.”
Cable news ratings spike year-over-year
More social media connections than ever before
With social gatherings on pause, social media platforms have become even more important channels for maintaining connections. “There is outsized strength across the full sector, representing the highest level of concurrent usage that we have seen,” says Anmuth.
Facebook’s total use across its messaging services has increased by more than 50% over the last month in areas most affected by the virus. On Messenger and WhatsApp channels, voice and video calling more than doubled in the same timeframe. In Italy, for example, time spent across its app suite was up 70% since the outbreak, and group calling increased by 1,000% during the last month.
Snap is seeing similar engagement and all-time highs across the platform, according to Anmuth, with Snaps sent between friends even surpassing previous peaks from major holidays. For the first quarter, the Snap community increased by 11 million daily active users to an average of 229 million. Communication with friends increased by more than 30 percent during the last week of March compared to the last week of January; larger markets experienced spikes of more than 50 percent. Record highs were also reached for group chat, Snap Games and Snapchat Shows, with more than 68 million users viewing content related to COVID-19.
As people consider picking up new projects, Anmuth notes that Pinterest is also seeing heightened engagement, particularly across categories involving home improvement and activities with children. According to Pinterest, the company has recently experienced record levels of users searching and saving new ideas, as well as creating new boards to help organize their projects during this time at home.
There is outsized strength across the full sector, representing the highest level of concurrent usage that we have seen.
Doug Anmuth
Head of U.S. Internet, J.P. Morgan
Streaming sees continued expansion
The streaming landscape continues to expand with new market entrants, as NBC’s Peacock and HBO Max prepare to launch in the coming months. Earlier in April, short-form video service Quibi debuted, offering TV episodes that run approximately 10 minutes.
“There has never been a point in history where so much original content is available,” notes Quadrani. Amid the global pandemic, Verizon has reported that video streaming is up 12 percent. “We think the ongoing spread of COVID-19 will lead to higher engagement and better subscriber growth for streaming services around the world near-term.”
Large media conglomerates are also entering the streaming space through mergers and acquisitions. In 2019, Viacom acquired streaming service Pluto TV. Earlier this year, Comcast acquired XUMO and, most recently, Fox announced that it will acquire Tubi, the ad-based video-on-demand platform. Quadrani notes this strategy will continue. “A permanent shift has taken place from a linear platform to a digital platform,” she says. “All traditional media companies are now assessing whether to build their own in-house capabilities or buy.”
When these new streaming services come to market, they may need to rely more on library programming initially since COVID-19 has halted the production of original content. “We think this will be another instance that illustrates library programming is just as important as original programming for streaming video on demand (VOD) services,” notes Quadrani.
For the first quarter new Netflix subscriptions were 15.8 million, which far surpassed J.P. Morgan estimates of 8.8 million according to Anmuth, with strong upside in every region. However, this significant growth was already trending above expectations before the global crisis. Over the next few months, he notes that subscriber additions could depend on the length of stay-at-home confinement, but having a bigger base of users now should make Netflix a larger service over time.
Audience churn rate is also likely to accelerate as consumers return to normal consumption patterns. “It will be a question of whether the growth in new subscriptions is sustainable,” says Anmuth. “First quarter results suggest that increased leisure time is far outweighing decreased spending power as of now.” Netflix has paused most of its productions across the world as a result of the pandemic, but still plans to release its originally scheduled content for the second quarter.
A permanent shift has taken place across the industry from a linear platform to a digital platform.
Alexia Quadrani
Head of U.S. Media Equity Research, J.P. Morgan
A hiatus for Hollywood
As movie theaters close their doors and premieres are postponed, all while audience demand is rising, production companies are adjusting their strategy. There is typically a 75-90 day theatrical window before new films are released to VOD (Video on demand) and as a result of COVID-19, studios are accelerating this timeframe. This allows them to shift their distribution costs toward providing at-home access.
Box office admissions experience sharp year-over-year decline
Universal Studios was first to go in this direction, releasing Trolls World Tour in global theaters and through VOD on the same day. “The theatrical window has always been sacrosanct across the industry, serving as a way to protect the theater experience,” says Quadrani. “The decision to release early potentially throws out the playbook as we’ve known it and longer term, there could be repercussions that linger once the pandemic ends.” Separately, Frozen II was released on Disney+ on March 15 in the U.S. due to COVID-19, shortening the home entertainment window by approximately three months so audiences could enjoy the film on Disney+ early.
As studios experience pressure to release films in advance, there is growing concern that studios may want to move to streaming faster than before the pandemic. “While we think windows will largely normalize after COVID-19 subsides, it could accelerate changes and perhaps leads to a more flexible window,” says Quadrani. This could mean that different films have different theatrical windows. For example, films that underperform at the box office would be moved to VOD earlier, while films that meet expectations keep the standard window.
Early at-home access is also happening for films that were released in theaters before the shutdown in an effort to counterbalance in-theater losses through VOD. “Most theaters make more than 90% of their gross revenue in their first six weeks, and their biggest risk is consumers relying too heavily on streaming,” says Quadrani.
Video games help fill the live sports void
As millions of students, who are large consumers of video games, stay home from school and extracurricular activities, engagement has increased to fill some of that time. According to J.P. Morgan Research, Verizon has reported that video game usage is up 75 percent across the United States. China also saw a similar uptick in game time during the pandemic, with game downloads up 80 percent in the first three weeks of February compared the average weekly download for all of 2019, according to App Annie.
“With live sports programming on pause for the moment, we are seeing an uptick in video game engagement and believe this can largely be attributed to sports fans, across age ranges, who aren’t able to watch their teams,” says Quadrani. Companies such as video game publisher Activision Blizzard recently released a new free-to-play mode Warzone for its Call of Duty: Modern Warfare and it already has more than 50 million players, making it one of the fastest-growing games in the industry.
Esports have resumed including the Overwatch League restarting matches on March 28, filling a sports content gap as leagues work individual teams and YouTube to resume matches online. However, sports services are now streaming free as seasons get delayed. The NFL Game Pass, NBA League Pass, and NHL.tv are now free for a limited time period, giving fans complimentary access to replays, archives, and more. “We believe this is an effort to maintain continued engagement with fans as live sports are halted across the board,” says Quadrani.
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