When Will TV Ad Spend Go Digital?
Many in the digital advertising ecosystem have their sights squared firmly on cracking the $70B+ TV advertising market. We often think of the shift from TV to digital as an inevitability; over time advertisers will reallocate their linear (cable & satellite) TV spend to IP-based streaming video services.
Despite the optimism, ad spend on OTT devices remains quite small — representing only 4% of total TV ad spend. What’s holding back advertisers from making this transition? In this post we’ll outline some of the factors that may trigger a rapid shift in media budgets towards ‘programmatic’ TV advertising.
High-value audiences become unreachable on linear TV
There has been lots of talk on the rise of cord-cutters — consumers ditching their cable subscriptions in favor of streaming video services. It’s true that pay TV subscriptions have trended downward — major cable & satellite TV providers lost nearly 800,000 subscribers in 2016. And the trend is accelerating in 2017 as more than 1 million households cut the cord over the first six months of the year.
However, the remaining subscriber base is still quite large — more than 90 million households in the U.S. have a cable or satellite TV subscription. Pay TV remains the best way for advertisers to deliver branded messages at scale.
It’s important to note, though, that subscriber figures don’t capture more dramatic changes in TV viewing patterns. Key demographic groups — namely consumers under 35 — are abandoning TV in favor of digital video. As a result, brands that specifically target millennials are relying on digital channels to reach their desired audiences. For instance, Adidas announced that it has allocated its ad budget entirely to digital with a focus on mobile & social channels that are skewed towards younger consumer groups.
It’ll be millennial-focused brands like Adidas that help kick-start broad adoption of programmatic TV ad formats, simply because linear TV won’t provide the ROI it once did.
Finally, we’ve seen the emergence of several streaming services as viable entertainment alternatives to pay TV. Ben Thompson recently wrote about the rise of direct-to-consumer video streaming platforms:
“Meanwhile, more and more cachet — and star power — is flowing to serialized television, particularly distributors like Netflix and HBO that go directly to customers. And don’t forget YouTube: video is a zero sum activity — time spent watching one source of video is time not spent watching another — and YouTube showed over a billion hours of video worldwide in 2016.”
According to Leichtman Research Group, 64% of U.S. households subscribe to either Netflix, Hulu or Amazon Prime Video. And there are more than 200 additional OTT platforms that cater to specific consumer tastes — Funny Or Die, fuboTV and Crunchyroll to name a few. These services will help accelerate consumers’ transition away from cable & satellite TV.
Programmatic TV inventory becomes available at scale
While Netflix & Amazon are subscription-based services that don’t (currently) include advertisements, many of the 200+ OTT services available to consumers are monetized by video ads. But transacting with advertisers on these services is typically a manual, IO-based process, resulting in a fragmented buying experience for advertisers.
Slowly buy surely, major DSPs are beginning to light up OTT inventory within their platforms. DataXu (a Thomvest portfolio company) recently announced a set of self-serve buying tools to access premium TV inventory. The Trade Desk rolled out a similar connected TV targeting tool in September. And last month, Google announced several new TV ad products in DoubleClick For Publishers, which will help video owners make their ad inventory available programmatically. Bringing the best aspects of programmatic advertising — targeting, measurement & optimization — to the TV space is essential to fostering advertiser demand.
More engaging ad formats are developed
As new consumer platforms emerge, advertisers tend to borrow ad formats from existing platforms. For instance, many early mobile ad platforms attempted to transpose traditional banner ads onto mobile devices, resulting in low click-through rates and poor performance. Over time, more engaging formats like in-feed or rewarded video ads gained popularity because they demonstrated significant performance improvements over banners.
Similarly, connected TV ad platforms must evolve formats beyond the traditional 30-second ad spot. They’ll take advantage of the better data and targeting available in a digital environment — resulting in ad formats that are contextualized to a household’s location, viewing patterns & demographic attributes. They’ll contain customized call-to-actions that drive consumers to rich on-TV landing pages. And campaigns will be updated in-flight based on rich measurement data flowing to the agency & marketer.
The onus is on the digital advertising industry to foster such innovation — there is an opportunity to improve upon the traditional TV ad format versus merely porting it over to streaming video services.
