Generation Z as Customers

There has been a lot written about how Millennials are not buying telecom products at nearly the same rate as old generations. A large percentage of new Millennial homes reject both traditional cable TV and telephone service. They seem to be buying home broadband at about the same rate as those in Gen X. I remember seeing a study a few years back that suggests that people’s telecom buying habits are heavily influenced by what they did as teenagers, and the buying habits of the Millennials seems to bear that out.

But now we’re starting to see studies of the next generation – Generation Z, born between 1995 and 2012. This is the first generation that was handed smartphones at an early age and it can be argued that this makes them the first generation that has been immersed in computer technology for their whole life.

CommScope has been doing an annual report of the technology behavior of Generation Z, and this year’s report can be downloaded here. The study is not for the whole generation, just those 13 and older. It’s fascinating and takes an in-depth look at how this young generation uses technology. Some of the more interesting takeaways of this year’s study include:

  • First, this is a large generation. In 2015 they were 26% of worldwide population, which will increase to 33% by 2020.
  • Already today this generation accounts for 25% of consumer spending which is expected to increase to 40% in ten years.
  • 96% of Generation Z in advanced countries own smartphones.
  • This generation is nearly always online and spend 74% of their time online outside of school and work. According to the report this is the “first generation that appears to live equally in the digital world and the real world”.
  • 60% of Generation Z will not use an app or website that is too slow.
  • 2/3 of Generation Z are interested in buying things directly from social media sites.
  • The generation’s use of technology is increasing year-over-year. 80% say they are using their smart phone more than last year. Plus there is an increase of 42% for usage of laptops/desktops, 24% for tablets, 10% for smart watches.
  • 44% of the generation expect to buy a new smartphone every two years.
  • Their most popular apps are YouTube (56%), WhatsApp (47%), Facebook (38%), Instagram (30%), Twitter (22%), Snapchat (20%) and Google Apps (19%).
  • The generation expects performance from devices and services. They want fast bandwidth, long-lasting batteries, efficient and easy-to-use apps. They are likely to be demanding consumers.
  • 70% of the generation are satisfied with their bandwidth at home, and far less satisfied with bandwidth elsewhere like school (41%), shopping (38%), or outdoor public spaces (36%).
  • I don’t know how this compares with older generations, but a lot of Generation Z is interested in new technologies – virtual reality (44%), AI (41%), driverless cars (39%).
  • This generation is the first where more than half are content creators. 52% share content they have created with others. 43% create content weekly.
  • 2/3 of Generation Z agree with the sentiment that the age of personal privacy is over.
  • The generation is split on cellphone choice with 51% preferring Android to 49% for iOS.
  • 63% of Generation Z say that they would be lost without their smartphone.

What does all of this mean for an ISP? I think there are a few key takeaways.

  • This generation values high speed broadband. They also value mobility more than anything else. They are likely buyers of home broadband products unless future cellphone data products get fast and affordable enough to be a reasonable substitute.
  • Generation Z will be even less likely than Millennials to buy traditional cable TV, and practically none will buy landline telephones. This generation is not going to be buying the bundle.
  • This generation grew up with the small cellphone screen and will be happy with that format for much that they do.
  • Generation Z is going to be more demanding than past generations in terms of bandwidth and product performance and will quickly bail on providers that don’t live up to their expectations. This is not going to be a generation of loyal customers, but one that will switch to something better.
  • They are far more likely to be early technology adapters, particularly for technologies that will save them time, like driverless cars.

Generations Matter

Nielsen recently published their first quarter Total Audience Report for Q1 2017. It’s the best evidence that I’ve seen yet that there is a huge difference between generations when it comes to video viewing habits. Compared to most surveys that look at a few thousand people, these statistics are based on almost 300,000 households.

The report examined in detail the viewing habits of the different US generations – Generation Z (ages 2 – 20), Millennials (ages 21 – 37), Generation X (ages 38 – 52), Baby Boomers (ages 53 – 70) and the Greatest Generation (ages 71+). What might surprise a lot of people is that Generation Z and the Millennials together now make up 48% of the US population – and that means their viewing habits are rapidly growing in importance to the cable TV industry.

The report outlines how the various generations own or use various devices or services. But note that these responses represent the entire household. So, for example, when Nielsen sought answers from somebody in generation Z it’s likely that the answers represent what is owned by their parents who are likely a millennial or in generation X. Here are a few interesting statistics:

  • The broadband penetration rate between generations is about the same, ranging from 82% to 85% of households. It wasn’t too many years ago when the baby boomer households lagged in broadband adoption.
  • There is a significant difference in the use of OTT services like Netflix. 73% of homes representing generation Z subscribe to an OTT service, but only 51% of baby boomer only households.
  • Baby boomers also lag in smartphone adoption at 86% with the younger generations all between 95% and 97% adoption.
  • Baby boomers also lag in the adoption of an enabled smart TV (meaning it’s connected to the web). 28% of baby boomers have an enabled smart TV while younger households are at about 39%.

The biggest difference highlighted in the report is the daily time spent using various entertainment media that includes such things as TV, radio, game consoles, and surfing the Internet.

The big concern to the cable industry is the time spent watching cable content. For example, the average monthly TV viewing for those over 65 is 231 hours of live TV and 34 hours of time-sifted TV. But for people aged 12-17 that is only 60 hours live and 10 hours time-shifted. For ages 18-24 it’s 72 hours live and 12 hours time-shifted. For ages 25-34 it’s 101 hours live and 19 hours time-shifted. This is probably the best proof I’ve seen of how much less younger generations are invested in traditional TV.

This drastic difference for TV stands out because for other kinds of media there is not such a stark difference. For example, those over 65 spend about 67 hours per month using apps on smartphones while those 18-24 use 77 hours and those 25-34 use 76 hours.

There even wasn’t a drastic difference in the number of hours spent monthly watching video on a smartphone with those over 65 watching 2 hours per month compared to 7 hours for those 18-24 and 6 hours for those 25-34.

The only other media with a stark difference is video game consoles with those over 65 using 13 hours per month while those 18-24 use 49 hours per month. Other things like listening to the radio or using a multimedia device (like Roku or Apple TV) are similar across generations.

The drastic difference in TV viewing has serious repercussions for the industry. For example, TV is no longer a medium to be used to reach those aged 18-24 since they watch TV over 180 hours less per month than those over 65. We’re seeing a big shift in advertising dollars and during the last year the amount spent on web advertising surpassed TV advertising for the first time. When you trend this forward a decade it spells bad news for the broadcasting and cable industries. For many years there was a big hope that as people get older that they would revert to the usage patterns of their parents. But the evidence shows that the opposite seems to be true – that kids keep their viewing habits as they grow older.

When you compare this report to earlier ones it’s obvious that the difference between generations is widening. Just comparing to 2016 those over 65 are watching more TV each month while the youngest generations are cutting back on TV over time – Generation Z watched 15 minutes less TV per day just since 2016.

Looking at Generation Z

We’ve already seen a lot of analysis about the viewing habits of Millennials. We know as a group that they watch less traditional linear TV than older generations. We know that over 30% of millennial households are already cord cutters and get all of their entertainment from some source other than traditional TV.

But now we are starting to get a glimpse at Generation Z, the next wave of our kids. These are the generation following the millennials. A new survey firm, Wildness, is concentrating on this generation to study trends for companies that want to market to this segment. The firm is a spin-off of AwesomenessTV (and since I assume you don’t know what that is, it’s a leading source of programming for kids on YouTube).

Wildness just did their first survey of Generation Z viewing habits. These kids are the first ones to grow up in a connected world since birth. They looked at 3,000 kids from 12 to 24 and found the following:

  • Nine out of ten watch YouTube daily.
  • For 31% of them their favorite programming is on YouTube.
  • 30% of them follow their favorite brands on social media and post about them.
  • When asked if they could keep only one viewing screen, only 4% said they would keep a television. Their screen of choice is a cellphone.

This does not bode well for traditional linear television. For a long time industry pundits assumed that millennials would ‘come back’ to traditional TV as they got older and started their own households. But they have not done so and now it’s largely accepted that the way you learn to view content as a kid will heavily influence you throughout your life. And Generation Z kids are not watching linear TV.

Another interesting aspect of Generation Z is that they are not just content consumers, they are also content generators. More than half of them routinely generate content of their own (short videos, pictures, etc.) and share with their friends. And a significant amount of their viewing is of content generated by other kids. This has to scare traditional content generators a bit as these kids are not consuming traditional media to the extent of older generations. This generation has blurred and blended their social life with their online life to a much greater degree than older generations. This is the first generation that freely admits to being connected 24/7.

And it’s not just prime time TV shows that are being ignored by this generation. They are also not following sports, traditional news or any of the other standards of programming. At a young age they are discovering that interacting with each other is far more satisfying than watching content ‘crafted’ for them by older generations. Most of the programming they follow on YouTube is being generated by contemporaries (millennials or younger) rather than by traditional media companies.

Anybody that offers traditional cable TV has to look at these statistics and know that the clock is already ticking towards a day when cable TV becomes obsolete. Already today the average age of viewers of prime time shows keeps climbing as younger viewers eschew linear programming.

Last year about 1.7% of all households become new cord cutters. That may not sound like a lot, but it’s over 2.1 million households. And it seems that cord cutters rarely come back to traditional TV. A lot more older households are also favoring Netflix and other OTT content. These households still maintain cable TV subscriptions, but you have to wonder for how long.

I would not be surprised within a few years to see cord cutting accelerate rapidly. It’s getting hard to find households that are satisfied with what they are paying for cable TV. Even those who love traditional cable think it costs too much. And this could lead at some point to a rapid abandonment of traditional cable. But one thing the industry must accept is that when Generation Z grows up they are not going to be buying cable TV.

Millennials and Broadcast TV

Fatty_watching_himself_on_TVYouTube recently caused a big stir in the broadcast world by announcing that it now reaches more Millennials (individuals between 16 and 36) than any broadcast or cable network. Of course, since massive advertising dollars are at stake, the cable networks all pushed back on the claim. And the fact is, nobody knows the real numbers because YouTube is not measured by Nielsen ratings in the same way as broadcast and cable networks.

But one thing is clear – that Millennials are abandoning traditional TV in droves. Just this last TV season there was a huge fall-off in Millennial viewers almost across the board, as measured by Nielsen. This not only has a big impact on advertising and on content providers, but it has to be of great concern to anybody that offers a traditional cable TV product.

Nielsen reports that during the 2014-15 TV season that there were 19 shows broadcast in primetime that drew 1 million or more Millennials. In this past season that dropped to 12 shows. And the drop is almost across the board. ABC Millennial viewers were down almost 19%. The CW that has programming for younger viewers was down 16%. NBC dropped 10%, Fox dropped over 7% and CBS was down 3%.

Some individual shows lost a lot of support from Millennials. For example, How to Get Away with Murder and Family Guy each lost an average of 700,000 live weekly viewers. Scandal and Once Upon a Time each lost 500,000 live viewers. The trend isn’t just one of Millennials abandoning live viewing. Nielsen tracks viewing also on video-on-demand. In 2014-15 the show How to Get Away with Murder had 2.7 million viewers aged 18 – 34 in live-plus-three and 2.8 million in live-plus-seven viewing. Those numbers dropped in one year to 1.7 million and 1.9 million, a drop of 37%.

This trend is one of the primary drivers that is moving advertising away from traditional TV to web-TV like YouTube’s Google Preferred. eMarketer reports that 2017 will be the year where Web advertising passes TV advertising. They are predicting $77.4 billion for web advertising compared to $72 billion for TV. And they predict after that web advertising will skyrocket while TV advertising will remain flat. They also predict that by 2020 that mobile advertising will eclipse TV advertising.

None of these statistics are good signs for traditional TV networks and for cable TV operators. An entire generation of viewers is tuning out, and the expectation is that generation Z behind them will have almost no affinity for television. Recent studies suggest that peoples’ TV viewing habits are largely set by their experience with the medium as children, and the children of Millennials are going online far more than watching traditional TV.

This doesn’t mean that watching video content is down. The average hours for individuals to watch some kind of video content has grown slightly over the last decade. But that viewing time is now being spent watching YouTube, Netflix, Amazon Prime and other non-TV sources of video. And the viewing is rapidly shifting away from the TV screens to other devices.

Millennials are an interesting generation. They are old enough to remember the time just before the explosion of technology, but they are young enough to have adopted new technologies as they came along. They are the generation that has experienced the biggest change during the shortest period of time for digital technologies. But it seems that as they are getting older that they are becoming more like their kids and are abandoning older technologies like sitting in front of a TV.

I’m not sure that cable companies really are going to have any product to attract the attention of this generation and certainly not for their children in generation Z. Cable companies are hoping that things like TV Everywhere and skinny bundles will slow people from dropping TV entirely, but even that might not be enough. Broadcast TV is now largely something that is being produced for – and watched by – Baby Boomers. And they aren’t going to be around forever.