(Bloomberg) -- Kids like Caleb Moushey are killing cable TV.
Not that Caleb knows from cable. After all, he’s 7 years old. But Caleb rarely if ever watches conventional television. “Everything is Netflix,” said his mother, Ally Brown, an insurance agent in the St. Louis area who also has a 5-year-old and a baby on the way.
More and more kids are like Caleb. The cable networks for children, in decline for years, are now in a free fall. This season’s ratings for the 2-to-11 set are shaping up to be the worst yet. And few in the industry predict a turnaround.
The implications are enormous for giants like Viacom Inc. and Walt Disney Co. Viewership of the three most-popular networks for the very young -- Nickelodeon, the Disney Channel and the Cartoon Network -- is down more than 20 percent this season from year earlier, according to data from Nielsen. It’s a low point in a long-running trend as Netflix Inc., YouTube and other streaming services have taken off.
Media companies still make money from children’s TV, with the most-watched cartoons spawning toy brands and licensing deals that can generate millions of dollars. So “the traditional brands are stuck in a tough position,” said Birk Rawlings, who left Nickelodeon to run DreamWorksTV, a kids media company that includes a YouTube channel. “They can see what is changing, but to embrace what’s new they must run away from a healthy business.”
Rawlings was vice president of animation at Nickelodeon when its parent company, Viacom, committed what many in the industry consider the original sin: It licensed many of its kids shows in a package to Netflix in 2010. That arrangement allowed Netflix to lure customers with Nick’s biggest hits, including “SpongeBob SquarePants.”
At the time, Netflix had fewer than 20 million subscribers. Now, it has 125 million. Nickelodeon considers a show a hit if it draws 2 million or so viewers.
Meanwhile, the amount of time that the youngest watchers spent viewing conventional TV fell 30 percent between 2010 and 2017. And U.S. advertising sales for kids’ networks haven’t grown for five years, having plateaued at about $1.2 billion annually. Disney and Nickelodeon declined to make executives available for interviews for this story.
Netflix, whose shares have climbed 58 percent this year, is ramping up the competition further by bringing more youth-oriented production in-house. Last year, it hired Melissa Cobb away from a DreamWorks joint venture to run a kids and family division, which just produced a new live-action series, “Alexa & Katie.”
The company also poached two writers, Scott Thomas and Jed Elinoff, from Walt Disney Co.’s Disney Channel, where they recently created a follow-up to “That’s So Raven.” They’re the first producers of children’s programming to strike an exclusive arrangement to make shows for Netflix, according to people familiar with the matter who asked not to be named discussing a deal that hasn’t been announced.
Disney, Nickelodeon and the Cartoon Network are playing catch up. Nick has a three-year-old streaming platform called Noggin. Time Warner Inc.’s Boomerang online subscription service shows classics like “Looney Tunes,” and Cartoon Network released videos from the popular show “Steven Universe” on its app before they appeared on TV.
Disney announced plans to yank its movies from Netflix and to make content based on Marvel comic books, “Star Wars” and its trove of animated characters for its own streaming service that will debut next year.
The pressure is on. The youngest entertainment-seekers are being raised on the internet, and cord-cutting will accelerate as new batches of babies joins them. The networks have to figure out how to make more money from the shows they produce, whether they’re streamed or broadcast on the tube.
“We have to believe” the dollars “will catch up to the audience,” said Christina Miller, head of Cartoon Network and Boomerang. “If it’s the opposite, game over.”
©2018 Bloomberg L.P.