In 10 years, TV will be bought through audiences, not ratings. It’s an inevitable fact, but one that is only delayed because the infrastructure of TV runs at a snail’s pace.
There are billions of dollars running through TV advertising, but there are billions more to be made if the audience can be segmented and advertisers can pick and choose who sees their ads. Its not a difficult concept – a TV can become addressable by recognizing the viewer and making a selection in the set-top-box. The commercials loaded during the national or local pods can be targeted based on who is in the room. There will still be some “waste” since more than one person is likely to be in the room, but by adding a simple addressable element to TV you could likely see an increase of 10-15% as a premium for pricing and that translates to hundreds of millions, if not billions, of dollars.
Of course for this to happen, the set-top-box needs to be updated and the system for queuing up and delivering commercials needs to be updated as well. It could be as simple as ad-serving (which I admit may not be that simple for you or I, but is simple compared to much of the rest of the web) in that an ad would be matched to an audience and delivered. There could still be a roadblock option whereby an advertiser could purchase an entire audience, but that could be offered at a discounted price, though still a higher out of pocket cost. Networks could easily place minimum orders for audience segmentation, maintaining volume of advertisers and ensuring they’re not slicing up the audience too much. It would also make it possible to institute a true exchange model for the spot market, potentially making it a more automated, higher margin portion of the business. Automated system for buying TV can scale infinitely and it would even enable the networks and cable channels to package their online with their traditional TV into “surround” packages across devices and platforms. Sounds cool, doesn’t it?
As a former buyer of both TV and online, I would applaud this kind of move. The MSO’s are certainly interested in it as well, but it requires two things they don’t like; investment and standardization. There would be an investment in the infrastructure required to make this work and there would be a need to standardize that infrastructure, which could make it easier for the viewers to switch cable companies. The single largest challenge for the MSO’s is fighting churn and ensuring their customers don’t switch. Each time the set-top-box needs to be changed is a chance for a switch to occur, so they try to limit the number of changes.
At some point the lure of money will overcome the fear of change though, and TV will become addressable. My prediction is the catalyst for this change will occur sometime in the next 4 years and it will be triggered by a flat or decreased upfront. As soon as TV advertising shows the sign of a revenue plateau, the powers that be will become interested in finding ways to make more money and audience buying could enable that. TV is still the most powerful medium and I am confident in saying the Internet will not overcome that, but it’s only because within the next 10 years the line will blur between Internet and TV. If both models are programmatic and addressable, then whom do you approach to purchase the media? The networks may end up as the most powerful “network” of all.