Technology has forced even the most egregious laggards to embrace reality. In 2015, the Internet’s reach is so pervasive that it has even penetrated segments like utilities and luxury goods, two notable holdouts.
Add TV to that list. Despite the explosion in digital media over the past few years, which has completely redefined advertising, TV remains an oasis in which the buying and selling hasn’t really changed much since the Mad Men days.
Finally, that’s changing. In particular, there’s been a lot of talk lately about programmatic TV buying. That is, instead of salesmen making deals over three-martini lunches, some TV is starting to be bought and sold dynamically in a bidding process that reaches consumers in real time, while they’re theoretically in the best position to receive an ad message.
While TV’s late embrace of programmatic reaffirms the fact that the buying process works well, there are lots of reasons to be skeptical about claims that TV finally has gotten its act together and will fend off digital’s inevitable dominance. In particular, I can name four reasons why programmatic TV is over-hyped:
1. TV is Losing Viewers in Droves. TV may finally be ready for millennial viewers, but millennials are tuning out. In 2011, 21.7 million young adults watched TV. In January 2015, the figure was 17.8 million, according to Nielsen. “The change in behavior is stunning,” Alan Wurtzel, NBCUniversal’s audience research chief, told the New York Post.
“The use of streaming and smartphones just year-on-year is double-digit increases. I’ve never seen that kind of change in behavior.” That follows a 50% drop in TV viewership from 2002 to 2013. This upends the argument that ads shown on a TV are more effective. That may be true, but if your audience is tuning out, it’s also irrelevant.
2. Netflix is Eating TV Advertising. Remember when you used to flip around your cable TV options to find something to watch? If you’re one of those 40 million Americans who subscribe to Netflix, chances are your viewing habits have changed in recent years.
Now, instead of searching channels, you browse Netflix’s catalog. The upshot is that you’re watching fewer TV ads. As Netflix grows, ad-supported TV will make up less and less of the pie. At the same time, standalone options like HBO Now will make consumers question the wisdom of subscribing to cable in the first place.
3. Perversely, This Makes TV Ads More Expensive. Supply and demand governs most businesses, but not TV advertising. In the 1972-1973 TV season, before cable and way before Netflix, the top-rated show got an estimated audience of 21.6 million households. In the 2014-2015 season, being a top show meant you got 7 million to 8 million households to tune in.
Despite the falloff in average viewership, TV advertising prices rise every year. A 30-second ad during “Monday Night Football,” the top-rated show, costs around $400,000 per Variety. A TV ad seller’s supporting argument here might be “Where else will you get 8 million people to tune in at the same time?” That brings us to our final point:
4. The TV Ad Model is Irrelevant and Inefficient. If you want to reach 8 million people at the same time, you don’t need to do it via TV. In fact, that’s a wildly inefficient way to get your video ad in front of an audience of that size. That’s because TV ads are sold based on demographics – your age, sex, etc. – rather than interests.
Would you rather reach 8 million people who are likely to be between 18 and 49 years old or would you prefer it if those people had all indicated – via their online activity – that they are likely to be interested in what you’re selling?
Change takes a while to sink in. Advertising has advanced much just over the last decade. The TV industry is scrambling to catch up, but it’s too little, too late.