Fixing a Hole in Television’s Ad Model

Fewer, shorter ads will lead to a revenue shortfall at networks
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TVs are everywhere, affixed to your wall, becoming the wall or in your hand. We have more entertainment than ever in the history of video and are spending ever more on entertaining the world’s sprawling population while we try to satiate the overwhelming appetite for storytelling. Tremendous. But the economic model of the last century is looking as legacy as its technology and needs to evolve, as things are going to change even faster now.

Mark Popkiewicz

Mark Popkiewicz

You can see the signs everywhere. Turner has been running fewer ads on some of its networks, NBCUniversal is cutting the number of primetime spots by 20% and Fox wants to dramatically cut broadcast ad time to just two minutes per hour by 2020. Revenues are under increasing pressure.

Historically, networks practiced the supply-and-demand doctrine by reducing inventory in order to hike prices, offering fewer, bigger advertisers more space for themselves. It is a tried and tested tactic. But this time is different. In 2018, the great ad load-slimming diet is mostly on doctor’s orders rather than vanity.

From a foundation of declining viewership, sustaining the usual rate card will be a challenge. The research does not support the network case to show a high enough increase in marketer value to warrant the costs per thousand (CPMs) they would need to make up for the revenue hole. Don’t get me wrong, broadcasters still command much of the high ground, but there are contenders who are planning to take that hill.

So, the $72 billion TV industry is now staring at the prospect of a meaningful and growing hole in its crucial ad income stream — one that is going to need to be filled.

Everyone knows how we got here. The growth in subscription video services has reduced the need for traditional scheduling and ad-funded media — or, rather, a user experience that seems to be growing ever more interruptive. And it’s having an adverse impact on advertisers.

Analysis from nScreenMedia suggests U.S. Netflix viewers, by substituting free viewing for subscription video-on-demand, are missing 2 billion ad views every day, totaling missing ad sales estimated at between $3 billion and $6 billion annually.

In other words, the hole is already approaching 10% of the current market. And that’s just thanks to viewer behavior, without factoring in how advertisers could follow viewers to some of the new emerging platforms with no shortage of investor appetite to lay claim to the new world.

Imagine taking two-thirds of ad revenue off the table. Networks may be able to make one-third back in higher prices, but that still leaves another third — a whopping $24 billion in missing ad revenues.

The same old industry thinking needs a fresh approach. Now, more than ever, networks need to come up with new ideas in order to fill the gap and deliver higher value to the viewer through advertising. For example:

• Advertising that is cognizant of the real-world viewing experience, e.g. location, device, even mood;
• Smarter ads that custom craft ad pod length and even creative (not just targeted ads) for a truly personal experience;
• Real-time measurement that doesn’t just focus on the physical characteristics of the ad, but delivers meaningful insights into audience engagement with the brand’s message;
• Advertising that blends into the viewer experience; rather than disrupting it, essential to the future of ever more immersive content;
• Insight-driven data from trusted sources and transparent, harmonized metrics.

Instinct suggests the industry will overcome its challenges. For a buyer base that has long appreciated the dependable currencies with which TV is bought and sold, these new options represent complexity and uncertainty packaged in oceans of data.

So what comes after the 30-second spot? While today’s generation has been reared on quick-fire online video prerolls, don’t expect the six-second format to save the day. If you merely stuff the classic ad pod full of shorter ads, you may end up with five times as many ads. The spot ad format used to be about telling short stories, and doing it well was challenging even then. But storytelling in six-second chunks? Creative storytelling just got a lot harder.

Pricing Poses Challenges

Pricing new ad formats is becoming even more challenging. Is a six-second ad valued in linear proportion to a 30-second spot? Is a view counted when the whole ad is completed, or when the ad has been viewed past any pertinent message payload? Or is it all a compromise, with billing always taking place after a fixed amount of time has elapsed, e.g. two or more seconds? If the latter, storytelling becomes highly stressed as the message and impact has to be delivered in a very limited amount of time. Given that it’s all about cause and effect, the future must bring smarter, independent measurement solutions that recognize that not all ads have the precisely same effect, at the same time, on audience psychology, and that context has a great deal to do with performance. The supply and demand side data wars have to end as the measurement industry steps up and delivers reliable insights on-demand, in real time, recognizing that privacy laws are likely to get in the way of the promised land.

SVOD companies should focus on great content and the audience experience. The viewing public has voted with its fingers and interruptive viewing experiences are falling out of favor. The best way for broadcasters to fill that hole is to lean in by balancing traditional ad spots with right-sized, relevant ad inventory and programming.

Despite the “cord-cutting” chatter, what TV still has is reliability and trust. Put these things together and it is clear that broadcasters must work with brands to offer opportunities to produce and promote content for viewers.

What is certain is that networks have a great opportunity here, but won’t win with an ad model that looks anything like the old one. Merely reducing ad size can’t be only the solution, so innovative ideas, rather than tinkering and downsizing, will be required to move the industry forward.

Mark Popkiewicz is CEO of Mirriad, a London-based company specializing in in-video advertising.

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