In March of this year, nearly two-thirds of Colorado was in the midst of a drought, with more than half the state in moderate to severe conditions. The drought has passed with tremendous rainfall in the past few weeks, but at the cost of intense flooding throughout many areas. This is nature’s powerful example of the law of supply and demand — the value of water greatly altered by its availability.
In the world of TV advertising, the same laws are true. Some markets are short on supply, while others have it in bucket loads. The challenge the local U.S. market is facing is one of maintaining inventory value as supply, and transparency of audience, increases.
It’s difficult to pick up a trade publication these days without seeing real estate dedicated to analyzing changes in TV or predicting the demise of traditional TV buying practices. “Programmatic is the future,” “resistance is futile,” “programmatic will put a human on Mars by 2020”… and so on, and so forth.
But in reality, the application of programmatic is not so cut and dried. Depending on where you are in the world, the underlying economics of audience will have a profound effect on the strategic value of programmatic as a medium to a media owner.
Take France, for example. On the whole, there is very little unsold TV inventory, meaning supply and demand are in natural balance. This is a market (by virtue of regulation that prevents geographic ad targeting and addressability within a TV broadcast) that will likely yield few buy- or sell-side advantages in pricing or audience discovery within a programmatic TV framework. Here, programmatic simply means industrial automation, and its benefits will likely materialize in the form of operational efficiencies.
By contrast, the U.S. has roughly 70 ad-supported channels available to the average household, translating to at least 7 trillion impressions within traditional linear TV on an annual basis. At a $70 billion industry haul, this means the average net monetization of TV audience stands somewhere around $10 CPM. You can look at SQAD or Hungerford and know that transactional CPMs are well north of $10, but it points to a much more significant issue the U.S. TV industry faces, which is that supply far exceeds demand. Wide swaths of inventory are simply unsold or grossly undermonetized.
This should flag a tipping point that is rapidly approaching. How much of a media owner’s digital distribution of content through SVOD or direct-to-consumer apps (both environments where rich audience data accompany each 1:1 monetization opportunity) will it take to eclipse the gross revenue potential of the broadcast linear stream? Back-of-the-envelope math tells us that, at an average $40 CPM, the tipping point for media owners stands at 25% of their total (media rights) audience sourced through digital channels. Many media properties have already crossed this chasm. It’s estimated, for example, that as much as 70% of the audience for NBC’s The Tonight Show Starring Jimmy Fallon watches digitally.
In the context of programmatic, audience economics are at the core of maximizing value to media owners. Sure, there are the transactional mechanics and the blocking and tackling aspects of programmatic that facilitate automated transactions, but media owners need much more than transactional automation. They need the ability to manage inventory, maximize yield and seamlessly fulfill campaign audience commitments across all content distribution channels. They need robust data integrations, and they need modern ad serving capabilities to maximize value.
Early entrants into programmatic will certainly capitalize on pent-up demand that’s out there today, but holistically monetizing the most premium properties a media owner offers, irrespective of how that content is distributed, is paramount. Managing cross-screen campaigns at a Deal ID level within private marketplace environments will save media owners from the inundation of audience heralded by a programmatic future. Now, if only the weather could be managed programmatically!
Randy Cooke is vice president of programming TV at SpotXchange.