Connected TV: A Viable Ad-Supported Business Model?

Always on the lookout for emerging business models in the advertising-supported T/V (Television/Video) space, I became aware of efforts underway by a company called Videology (previously known as TidalTV) to develop just such a model for connected TV.

Quick review: What is  connected TV?  CIMM (Coalition for Innovative Media Measurement) describes it as “Broadband-enabled TV, via either a set-top-box or built-in technology (Source: IAB).” I would expand the set-top-box definition to include other OTT (Over-The-Top) devices such as MS Xbox Live and other gaming hardware found in millions of homes today, internet-enabled television sets by the likes of Sony, Samsung and others, the Roku, TiVo and other stand-alone hardware/software offerings and even Apple TV or Google TV that haven’t quite made it yet. Connected TV bypasses the primary methods of getting television or video content into the home on a big screen – over the air broadcast or cable/satellite systems – by employing IPTV protocol technology to carry streaming video through a broadband Pnternet connection. 

Videology offers buy-side (advertiser/agency) platforms for purchasing and managing online video inventory across multiple platforms (online PC, mobile, tablets and Connected TVs) and also recently launched a sell-side platform for publishers and producers of video content.

Here’s what I learned in a conversation I had with Todd Bender, VP, Business Development, at Videology:

  • Videology is committed to taking the complexities of integrating information and data from all these different devices, analyzing it to help guide decisions for clients. The company also strives to help simplify the technical challenges of providing video across a number of venues and devices, since the advertising platform technology understands where the ad is shown in a granular way.
  • Because its connected TV offering is based on IPTV (Internet Protocol TV) technology, it has capacity for interactivity and data stream capture outside of the closed set-top-box data controlled by cable or satellite uystem operators. This allows for measurement and use of data, under industry best practices, to create addressability and accountability not available through old-style, linear television.
  • There are three basic ways connected TV can provide advertising, similar to that purchased through cable and satellite systems:

o    Displaying video ads in the guide areas of interfaces for Consumer Electronics devices (e.g., Sony Bravia, Samsung’s Smart Hub), Xbox Live, etc.

o    Instream video units within OTT content apps (e.g. Hulu Plus, Netflix, individual Network apps etc.)

o    Branded applications where the advertiser owns an area for deep-dive, interactive exploration by consumers (e.g. travel, automotive, financial services advertisers).

  • Admittedly, this is a nascent ecosystem with more potential than usage right now, but because revenue is shared among app makers, content producers, ad networks and distributors, and because it increases value to advertisers and agencies with click-stream accountability and addressability, expanding offerings to consumers, it should be a viable option in the near future.

Here’s my take on the importance and future of connected TV advertising:

Challenges

More transparency is needed on how the ads run and are accounted for.  Though advertisers do not need to understand the algorithms for Google search (for example), they do need confidence and verification that the ads ran as purchased, and will need similar protections from fraud and error here.

There may be pushback from consumers on the privacy issues attached to addressable advertising as it migrates from online to other delivery platforms.

We’ve seen in 2011 that content rights-holders like Starz and various TV networks are reducing the number of programs available to OTT distributors (Netflix, Hulu, etc.) to protect the cable subscription revenue stream.  We’ve also seen original content begin to be produced by nontraditional TV channels (Netflix's "House of Cards," e.g.). Efforts from the current tandem of major producers of T/V content with major distributors can be a drag on supply. On the other hand, OTT distributor-produced content can challenge the status quo and expand both supply and revenue.

Opportunities

Because these video ads are triggered by an “on-demand” action by the consumer, there is an engagement aspect valued by advertisers.

Any manner that the supply of ad-supported content can be increased will help the overall economy of the business.   While profit margins may be lower, the amount and quality of programming that consumers seek can expand overall ad spending by attracting new advertisers who might want the more targeted and more efficient capabilities T/V can offer.

As the post-Baby Boomer generations move into the prime earning years, tech-savvy media consumers and key decision-makers on the marketing side will be drawn to features like addressability, effectiveness and verifiability of digital and interactive T/V, shifting dollars from old-school, linear television.

Cable system set-top-box data have geographic, technical supplier-centric limitations (until Canoe Ventures is able to provide an aggregated offering).  This provides an attractive alternative.

Summary

I believe the “tipping point” is still a few years off.  Until then, it will be important to track early adopters, and not just media consumers.  Agencies and advertisers willing to do more than “test” this new venue will be important in expanding this new way of buying T/V.  Change will happen when online advertising and traditional advertising silos on the buying side break down, become platform-agnostic, and begin to deal primarily with those suppliers who also offer cross-platform, on-demand T/V.  Buyers spending billions on traditional television will soon recognize the fact that the consumer wants T/V in various forms, when and where they choose. So to answer the question – yes, I believe Connected T/V will expand and compete with existing forms of ad-supported content and delivery.  Let’s check back in 2014 and see where we are.

Tags: tv, video
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