The TV Viewership Fallacy
Shortly after Henry Blodgett’s post "Don't Mean To Be Alarmist, But The TV Business May Be Starting To Collapse," the television industry responded quickly, most notably with Brian Wieser’s response, "Oh, Please, Of Course TV Isn't Going To Collapse -- We're Watching More All The Time!"
While these pundits throw grenades back and forth about the future of video advertising, it has become clear to me that all sides are missing some very important facts that suggest TV viewership numbers are grossly inflated when compared to digital.
For example, the most common argument used to question the importance of digital video advertising is that “Internet viewing represents 1.5% of all TV-video viewing, with traditional TV having a virtual near monopoly” at 91%. This argument has a few large and fundamental flaws.
First, simply because a television is on doesn’t mean it is being watched. If digital used the same argument (defined as “my computer is on”), time spent on digital would quickly multiply on a relative basis. “Television viewing” numbers are significantly less than “television on” numbers, and advertisers have always modeled this reduction in to the rates they are willing to pay.
Second, even if a viewer is present, you can’t compare a passive view on TV with an active view in digital. If a television is on and being watched, and the viewer is not using a DVR, it still doesn’t mean the advertising is being consumed. Advertisers have always understood this apples-to-oranges comparison and this is why digital video CPMs (cost per impressions) are higher than television CPMs (cost per maybes -- maybe I am on my phone, reading a book or otherwise not engaged).
Third, online video viewing does not represent the total universe of digital video advertising inventory. In fact, when combining both online and mobile digital video inventory, non-video viewing environments such as digital radio, casual gaming and social gaming represent more than 50% of total available impressions. Again, advertisers have always understood this and the importance of these channels should not be underestimated as essential to the historical growth of the category.
Now, let’s revisit the television versus digital comparison. I propose the following conservative estimates and encourage comments or research on their validity:
20% of the time a TV is on there is no viewer present.
33% of the time a TV is on and being watched, the commercials are not watched (including DVR user numbers).
50% of digital video advertising inventory online and in mobile is not within video content (i.e, gaming or radio).
As a result, the prior 98.5% broadcast vs. 1.5% digital argument, which maps to TV viewing and advertising opportunities being 65 times larger, completely falls apart. Using my conservative modifications, the ratio is reduced to only 17 times larger.
Once you understand that TV viewing has been grossly overstated, it becomes much easier to understand why the digital video advertising business is growing at 50% a year. We can argue about the percentage modifications, but we can’t argue that modifications are required.
Advertisers understand this fact intuitively as they all consume more free content on the web and on their phones, and they are moving their budgets as a result. It doesn’t matter if the TV pundits change their minds, because they are facing a trend of inevitability.
So what does this mean? It doesn’t mean the TV business is dying, or that the TV advertising business is ineffective. The TV business will continue to thrive, and the decline over the next three to five years will probably not be as significant as a percentage of revenue. Furthermore, TV advertising is still the most effective, scalable and differentiated ad medium in the world.
However, it does mean that digital video is much more important than the pundits would have you believe, as it is only 17 times smaller than the TV market -- and by most measures, equally or more effective. As a result, I expect digital video advertising to take significant share from other non-video traditional media such as print and outdoor, and take some of the growth that would otherwise be gained by television.