• by Rich Routman , Op-Ed Contributor, April 23, 2014

While some advertisers are now pursuing a video-neutral advertising strategy, in which all video impressions carry similar value, most of the incremental dollars shifting to digital video remain bucketed in either TV replacement or TV amplification.  Let’s examine the latest research available on each approach to try to draw some conclusions on the most relevant strategy.

TV Replacement

Research performed by the TDG in 2012 revealed that the number of “pay-TV refugees” – U.S. homes subscribing to broadband but not pay-TV services – will increase 58% from 2012 to 2017, growing to over 17 million US households.  Pay-TV refugees consist of both ”cord-cutters” (homes that once subscribed to pay TV, but no longer do) and ”cord-nevers” (homes that never subscribed to pay TV).  TDG also predicts that pay-TV subscribers will fall from 101 million to 95 million by 2017.  So far, TDG is correct, as a 2013 Leichtman survey showed the 13 largest MVPD companies (e.g. cable, satellite companies), covering 94% of the country, experienced their first ever year-to-year loss. Before 2013, only quarter-to-quarter losses had been recorded industrywide!

Additive to the data above, Nielsen’s most recent study indicates that Americans aged 18-24 watched a weekly average of about 22-and-a-half hours of TV during Q4 2013. That was a 47-minute drop-off from Q4 2012, which is down more than two hours from the year before.  So, in the space of two years, Q4 TV viewing by 18-24-year-olds dropped by about two hours per week.  Looking at other age groups, TV viewership is down across the board: 25-34-year-old viewers watched about five hours less, 35-49 watched roughly four hours less per month and 50-64-watched 2.5 hours less during Q4 2014. 

While hours of viewership on TV overall saw a slight decrease across each demo above, the key statistic is the growth in “pay-refugees,” especially against a coveted 18-24 demographic.  Younger audiences will be harder to come by at scale in the next 10 years on TV -- and the shift, in particular against that younger demo, is well along the way.

TV Amplification

Nielsen estimates that almost 145 million people watch video online in the U.S., compared to about 290 million who watch traditional TV, making the penetration of online video about half of the overall TV-watching population.   All of this online video-watching still remains a fraction of how much consumers watch TV in terms of time spent.  According to Nielsen’s Q4 2013 Cross-Platform report, Americans spend an average of 33 hours and 53 minutes a week watching traditional TV; however, they only spend an average of 4 hours and 6 minutes a week on the Internet, and only 50 minutes a week watching video online.  All those billions of videos watched online still only represent 2.5% of the time spent watching traditional TV.

In June of last year, comScore reported video ad frequency reached its all-time high of 121.1, meaning that each online video ad viewer watched 121 ads during the month, representing an increase in frequency of more than 25% from May’s 96.5 and more than double January’s figures of 58.4 While frequency is growing (via comScore) by leaps and bounds, reach is experiencing slowed growth.  At the midway point of last year, 54% of Americans watched online video ads, up from only 51% at the start of the year.  Turning to online video as a whole (not just ads), comScore separately reported that 85% of online Americans watched 44 billion videos, lasting an average of 5.3 minutes, in June 2013. 

This perceived slowed growth is not an accurate depiction of the digital video market. While audience and consumption of online video has not skyrocketed in recent years, consumption and audience on mobile video has, with an astounding 719% increase between 2011 and 2013 (according to Ooyala).  

Finally, the Buy-Side’s Approach

A recent agency survey performed by Videology revealed that 78% of agency buyers and planners were using digital video to supplement their television strategies (e.g. TV amplification) as opposed to 11% who saw digital video and TV as totally separate.  The other 11% leveraged video as a replacement to TV buying (e.g. TV replacement), shifting dollars to account for the growing pay-TV refugees noted above.

Bottom line, today’s dollars are best spent on TV amplification, as the buying of digital video to satisfy a TV-replacement strategy, based on the shrinking audience, will lead to incremental reach and likely too much frequency.  The cord-cutting community is growing and spending, and could be positioned for huge growth, especially if the Supreme Court rules in Aereo’s favor. But the scale, impact and methodology that works today - and for the foreseeable future – is made clear, as always, by looking at the numbers.