Welcome to the first edition of the Vewd update on the impact of the coronavirus (COVID-19) pandemic.

There is a lot that can be said, and has been said, about the impact of the pandemic, but the main focus of this newsletter is to provide a review of what we know about its global effect on the TV devices market.

TV Devices Supply Chain

In TV, the supply chain is extremely complex. Like all volume consumer electronics markets it is highly globalized, with a wide range of inputs from all parts of the world. For TV and set-top box manufacturers, key pieces of the supply chain are components, shipment logistics and distribution.

We’ll look at each of these in turn.

Hardware components

TVs and set-top boxes are highly dependent on the availability of electronic components. From a value point-of-view this is mainly semiconductors, but there are large numbers of other items whose lack of availability can stop production.

Manufacturing Capability

In Asia, the main centres of production for televisions are China, Korea, Japan, Vietnam and Malaysia. Europe is served mainly from Eastern European countries and Turkey. Manufacturing for North America is largely done in Mexico, with Latin America being served by factories in Brazil and Argentina.

The effect on production is determined by the level of infection in the different countries and the policy response of the respective governments, so it is difficult to generalize. There have however been reports on the impact in various countries, which give a flavor of what is happening.

According to DSCC, Digitimes has reported that Chinese manufacturing in general is recovering and was operating at around 80% of capacity in March, up from 40-60% in February.^[2]

Shipment Logistics

According to IPC ^[3], an industry association for the electronics industry, transportation networks are now starting to return to full capacity, though with nearly 9 percent of global container shipping capacity inactive in February. At the beginning of March, for example, port calls in China were returning to normal - ships tend to skip ports on their normal route if there is insufficient to drop off or collect.

However, air cargo capacity remains restricted. Most passenger flights are being cancelled and these carry around 50% of freight by value. Some airlines are flying in and out of China without passengers in order to maintain freight deliveries.

Device Distribution

In general TVs and set-top boxes (STBs) for the horizontal market are distributed via retailers, whereas STBs for pay TV are distributed via pay TV operators. In the former case, the main concern is the closure of bricks and mortar shops which restricts distribution to online outlets only. Development of online shopping varies considerably between countries, and so the impact on sales will be geographically dependent, but always negative.

For pay TV, the requirements for on site installation can prevent the acquisition of new customers and hence the demand for new STBs in countries with movement restrictions. For example, in the UK, Sky has stopped installations and will only send out engineers to fix problems at existing customers.

Content Supply Chain

Of course, people buy televisions and subscribe to services because they wish to watch TV. So a key part of understanding the impact of COVID-19 on TV devices is to look at the availability of content - the ultimate source of demand.

Production issues

China, as it is further through the pandemic, has seen some resumption of drama production, according to the National Radio and Television Administration.^[4]

In addition, many already-completed movie releases are being pulled as cinemas are not open to show them. These may be released later, or in some cases go directly to broadcast or streaming, which may at least provide some new content.

Live Content

Almost all sporting events for the next few months have been cancelled, creating a large hole in the schedules of many operators. Large events, like the Olympics which has been delayed to 2021, are traditionally big drivers of demand for new TV devices such as larger screen TVs.

Some sports have decided to run simulations which are broadcast on TV. For example NASCAR in the U.S. now has an eNASCAR stock car racing series, broadcast on Fox Sports, with drivers competing live on a simulator. The Grand National horse race normally held at Aintree in the UK was held virtually on April 4, with broadcasting by ITV. Fundamentally though, sports channels are restricted to re-runs of classic games and interviews with or by players.

Content Distribution

For broadcast services, distribution has not been a problem as these one-way technologies don’t have scalability issues. However there has been some concern about whether broadband operators are able to supply sufficient bandwidth to support the additional consumption for VOD services.

According to the NCTA in the US, both upstream and downstream peak usage is up, but its members networks continue to perform well ^[5]. BroadbandNow has also said that users in most of the U.S. cities that they cover should be experiencing normal network conditions.^[6] There are similar reports from European ISPs.

Revenue

The global TV content industry is essentially paid for by subscriptions, advertising and government funding (and also to some extent by investors).

Subscriptions

In the short term there has been a boom in consumption^[8] owing to social distancing and home isolation. This has led to increases in subscriptions and a reduction in churn. However the lack of new content coming though may mean that in the medium term there is a negative impact, especially as SVOD services tend to offer a pay-as-you-go (PAYG) model which allows subscribers to disconnect if there is nothing new available to keep their interest.

According to Strategy Analytics, COVID-19 is expected to add 5% to the number of SVOD subscriptions by the end of the year, an extra 47 million compared to the company’s earlier forecasts. ^[9] In the short term, there may also be a reduction in ARPU as providers stop HD services and re-allocate premium content to compensate for the lack of new programming. This suggests that there is unlikely to be much expansion in subscription revenue despite the additional subscriptions.

Similarly, there has been some evidence of increased demand for pay TV services from households that are self-isolating, but, as mentioned above, the need for installation is likely to dampen new subscription take-up. The lack of availability of new content and sports is also likely to have a significant impact on ARPU even if it does not reduce the number of subscriptions. For example to mitigate churn Sky in the UK allows pausing of the additional fees for its sports channels. Other operators are making premium content available free to subscribers for short periods.

For those operators that also offer broadband, this is of course a boom time as people who are forced to work from home or self-isolate find that their data needs have increased. This is likely to be a more permanent step change in demand.

Advertising

The US shutdown has come at a critical point in the U.S. TV production cycle. Pilots for new series are often filmed in March and in May U.S. networks present their schedules and negotiate advertising contracts worth billions of dollars for the year ahead starting in September. All of this is now on hold.

With in-home viewing increasing, and households under economic pressure, AVOD is an attractive proposition for viewers, and for the operators more viewing in theory means more revenue, even if sign-ups do not increase.

For advertisers who are unable to ship products or who have revenue issues, there may be reluctance to take ads however. Conversely, AVOD fits very well with services who deliver to the home - online retailers and food delivery companies for example - who may increase their spend.

Financial Markets

With the TV industry still in a disruption phase, many new ventures have been launched that are yet to make a profit, and so are essentially being funded by investor’s money. Sharp falls in stock markets will have dented both investors’ appetite and ability to fund new content creation, and to support more established players who are burdened with high debt.

TV Devices Demand

Other than the quality and availability of content, the other determinants of demand are the attractiveness of services versus alternative ways to spend time, and of course the ability to pay.

Viewing Time

With the Working From Home (WFH) directives, lockdowns, closure of entertainment venues and social distancing, people are spending much more time at home, and one of the few leisure time activities remaining is to watch TV - whether broadcast or delivered over the internet.

For example, TV consumption in Portugal has seen huge increases with reports of average daily viewing going up to 7 hours and 7 minutes per person.^[11] Comscore is seeing increases in the U.S. especially during the day now that more people are at home.^[12]

Disposable Income

With economic activity running at around two thirds of normal levels in some parts of the world^[15], at least for a period of a few weeks to a few months, there is bound to be a significant effect on GDP around the world, affecting consumers’ ability to buy new devices or take up new subscriptions.

Fitch Ratings expects world economic activity to decline by 1.9% in 2020 with U.S., eurozone and UK GDP falling by 3.3%, 4.2% and 3.9%, respectively. Although China is recovering from the disruption it suffered in the first quarter of this year, its recovery is expected to be limited by global recession which will push its annual growth for the year down below 2% - the lowest rate that the country has achieved for many years.^[16]

Having said that, according to Omdia, the correlation between GDP growth and the strength of the TV device demand is weak. Recessions often lead to people falling back on TV as the cheapest form of entertainment.^[17]

Overall Impact On TV Devices

TV shipments

Generally the TV market is seasonal, so shipments are normally lower in the first half of the year anyway. This year the fall is expected to be more marked. Overall, Omdia expects global television shipments to fall by 8.7 percent in 2020, compared with a forecast of 1.1 percent growth that they provided previously. So an impact of 10 percentage points attributable to COVID-19.^[17]

Trendforce are forecasting a similar level of impact, reducing their prediction of first quarter 2020 shipments to 44.6 million units, down by 8.6% from their pre-COVID-19 prediction of 48.8 million units. This was driven by the impact of COVID-19 in China.^[18]

The company has also modified its prediction for the second quarter to 44.1 million units from 47.6 million units before, down by 7.3%, as restrictions in Europe replace those in China.

Owing to the cancellation or postponement of big sporting events such as EURO 2020 and the 2020 Tokyo Olympic Games alongside economic factors, TrendForce has decreased its prediction of TV shipments in 2019 to 205.2 million units in 2020, a drop of 5.8% versus 2019.

DSCC expects recovery to begin in the third quarter with some catch up in the final quarter. They expect shipments to end the year 9% lower than in 2019 at 236 million units.^[19]

Trade Shows and Events Status

Probably the first point at which we realized that COVID-19 was going global was with the cancellation of Mobile World Congress in Barcelona. Due to take place on February 24-27, it was cancelled on February 12th - not too long after CES in Las Vegas in January where there was no mention of the looming threat.

Since then all trade shows and conferences up to the end of June (except Stream TV in Denver) have been cancelled, postponed or gone virtual. It is easier to list those that remain than those that will not or have not happened. As far as we know the following shows are still proceeding as planned:

• StreamTV Show: June 1-3, 2020, Denver, Co
• APOS: September 1-2, 2020, Bali (postponed from April 21-23)
• IFA: September 4-9, 2020, Berlin
• IBC: September 11-15, 2020, Amsterdam, Netherlands
• MIPCOM: October 12-15, 2020, Cannes, France
• ConnecTech Asia (BroadcastAsia): September 29-October 1, 2020 (postponed from June 9-11)
• Broadband World Forum: October 13-15, 2020, Amsterdam, Netherlands
• CABSAT: October 26-28, 2020, Dubai (postponed from March 31-April 2)

References

[1] March 30 - Coronavirus Quashes Panel Price Rally
https://www.displaysupplychain.com/blog/coronavirus-quashes-panel-price-rally

[2] March 24 - Volatility and Losses Continue as Virus Spreads Quickly Outside of Asia, More Containment and Stimulus Policies Introduced
https://www.displaysupplychain.com/blog/volatility-and-losses-continue-as-virus-spreads-quickly-outside-of-asia-more-containment-and-stimulus-policies-introduced

[3] March 12 - The Impact of the Coronavirus (COVID-19) Epidemic on Electronics Manufacturers
http://www.ipc.org/emails/gr/corona-virus-report2.pdf

[4] March 27 - China's TV drama industry begins to resume operation
http://www.china.org.cn/arts/2020-03/27/content_75868613.htm

[5] March 31 - NCTA’s Dashboard for COVID-19: How Cable’s Internet Networks Are Performing
https://www.ncta.com/whats-new/ncta-launches-covid-19-internet-dashboard

[6] March 25 - Internet Speed Analysis: Top 200 Cities, March 15th – 21st
https://broadbandnow.com/report/internet-speed-analysis-march-15th-21st/

[7] March 19 - Commission and European regulators calls on streaming services, operators and users to prevent network congestion
https://ec.europa.eu/digital-single-market/en/news/commission-and-european-regulators-calls-streaming-services-operators-and-users-prevent-network

[8] March 30 - Streaming in the Time of Coronavirus
https://www.conviva.com/research/covid-19streaming/

[9] March 25 - Strategy Analytics: Coronavirus Expected to Add 5% to Global Video-on-Demand Subscriptions In 2020
https://news.strategyanalytics.com/press-releases/press-release-details/2020/Strategy-Analytics-Coronavirus-Expected-to-Add-5-to-Global-Video-on-Demand-Subscriptions-In-2020/default.aspx

[10] March 25 - Magna Forecasts V-Shaped Recovery For The US Advertising Market
https://magnaglobal.com/magna-forecasts-v-shaped-recovery-for-the-us-advertising-market/

[11] April 2 - Portugal: TV consumption up 40%
https://advanced-television.com/2020/04/02/portugal-tv-consumption-up-40/

[12] March 31 - New Comscore Research Shows Continuing Surge in Daytime Television Viewing
https://www.comscore.com/Insights/Press-Releases/2020/3/Continuing-Surge-in-Daytime-Television-Viewing

[13] March 30 - Monthly Médiamat - Television Viewing in France
https://www.mediametrie.fr/en/television-audience-march-2020

[14] March 31 - Weekly TV viewing report
https://www.thinkbox.tv/research/barb-data/weekly-tv-viewing-report/

[15] April 5 - Despatches from an economy at two-thirds of normal
https://www.thetimes.co.uk/article/despatches-from-an-economy-at-two-thirds-of-normal-3l5jvjqld

[16] April 2 - Deep Global Recession in 2020 as Coronavirus Crisis Escalates
https://www.fitchratings.com/research/sovereigns/deep-global-recession-in-2020-as-coronavirus-crisis-escalates-02-04-2020

[17] March 31 - Omdia cuts 2020 TV shipment forecast by 10 percentage points as coronavirus crisis goes global
https://technology.informa.com/622337/omdia-cuts-2020-tv-shipment-forecast-by-10-percentage-points-as-coronavirus-crisis-goes-global

[18] March 27 - COVID-19 Pandemic to Indirectly Decline the Global TV Brands' Shipment by 5.8% YoY in 2020, Says TrendForce
https://press.trendforce.com/node/view/3346.html

[19] DSCC Revises Display Forecast for COVID-19 Impact
https://www.displaysupplychain.com/blog/dscc-revises-display-forecast-for-covid-19-impact