According to a new forecast by PwC, the U.S. television industry is in for a major shakeup. By 2027, traditional subscription and advertising revenue will be $30 billion less annually than it was a decade earlier due to ongoing cord cutting. 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. Millions more U.S. homes are expected to walk away, reducing total penetration to 49.9 million, down from almost 100 million in 2016. This means pay-TV will be present in just 38% of total U.S. homes.
The transition to streaming is proving painful as streaming costs and red ink have ballooned. Most streaming services are now offering (or about to offer) a version with advertising due to a difficult economic climate with high inflation. This entire shift is extremely delicate, since traditional television, albeit declining, is still what provides the cash to fuel streaming expansion.
However, 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 $33.4 billion and $35.7 billion that year, respectively.
“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,” PwC said. Revenue is expected to increase at a 14.2% CAGR – well ahead of SVOD’s increase at a 6.1% CAGR – and grow 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, representing a significant shift in media dollars.
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.