Commentary
Will Stock-Diving Fears Finally Drive TV Companies To Make Decisions They've Avoided?
- by Dave Morgan , Featured Contributor, August 6, 2015
Whether the companies eventually recover all of yesterday and today’s losses or not, it is probably clear to most that their world has changed. Investors now know that Netflix is having a real impact on TV viewership (Another stock chart shows Netflix went up 10% on the Disney news). Investors now know that TV companies are no longer impregnable to digital disruption and disintermediation.
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To be clear, TV companies are certainly in a better position than newspaper companies were 10 years ago — right before the Internet largely ate them up — but only if TV companies take the right steps going forward. Keeping the status quo (with a dose of healthy cost-cutting) will no longer be a successful strategy for the future. TV companies need to leverage the core power of what video, storytelling, sight, sound and motion can do in a digital, data-driven, personal consumption world. Most of them have resisted making radical changes to their business models. Maybe fears of more stock dives in the future will convince them that not acting is ultimately more dangerous than risking action.
Here’s what I think TV companies should be doing:
Financial engineering won’t solve for the future. Yes, Google might have been able to pop its enterprise stock $65 billion dollars in a day by hiring a new CFO, but I don’t see any similar opportunity for TV companies. They already have great finance people.
Market to Madison Ave. as if you mean it. TV companies are not great marketers when it comes to Madison Ave. “Must see TV” was great marketing. FOX’s “Empire” was brilliantly marketed. But TV companies don’t do a very good job marketing to their advertising clients and agencies. It takes more than upfront events and TCA tours. For every positive headline in the ad trades and positive research report that TV companies get, digital ad companies get 50. That needs to change. It requires focus and investment.
Stop showing so many redundant, irrelevant ads to your viewers. The data and technology exist for TV companies to stop rotating so many of the same ads to the same viewers over and over again. This happens because it's the way it’s always been done, because TV ad scheduling systems are designed to predictably deliver GRP and demo packages, and because things weren’t so broken before that this needed to be fixed. Now is the time to fix it.
Embrace direct consumer relationships. Affiliate fees are great and aren’t going to go away anytime soon, even if they might decline faster than hoped. However, it is critical that TV companies proactively build their own “skinny bundles” of TV programing and don’t just rely on one-off apps or bundles built by third-party distributors. They need to create direct consumer relationships and sales, using technology to help custom-build high value bundles of programming, just as travel suppliers and e-commerce companies do.
Yield optimize; yield optimize; yield optimize. The present and past of TV have been all about fat bundles and managing to succeed in a world with a lot of waste: wasted ads, wasted reach, wasted frequency, wasted pilots, wasted time. The future of TV is digital, unbundled and getting more from less. It means optimizing content for users. It means optimizing ad campaign yield for advertisers. It means optimizing ad inventory for revenue and margin yield. Done well, you will be able to deliver fewer, more relevant ads to your viewers. You will yield more branding and sales for your advertisers. And, most important to Wall Street and your future, you will yield more revenue and more margins for your company.
What do you think?
As the Brits say, "Spot on." Per Morgan key changes: direct consumer relationships, irrelevant ads and dealing with cost of advertising that does not ring the register.
Dave, the problem with some of the key points in your scenario is that they aren't feasible. For example, the idea that an advertiser can deliver more "relevant" ads, but in far fewer numbers, to those who are really interested in his product or service, sounds great, in theory. Were that possible the advertiser could cut ad spending dramatically---certainly a good thing for the advertiser, though not for the media. But there is no system in place, or in the offing, that allows the advertiser--- or a TV network or cable channel --to accomplish this purpose. The "big data", third party product use attribution notion, whose "findings" are mashed onto Nielsen ratings does not single out those who are most interested in what the advertiser has to say. It simply uses another method---and a potentially very flawed method---to generate slightly modified "raw"GRP tonnage, which is exactly what we have now.
Regarding the idea that marketers should find ways to dramatically reduce the number of "wasted" or "untargeted" ad exposures, which some viewers find so annoying, that, too, sounds fine, in theory. However, many advertisers are trying to broaden their user base and are not merely targeting those who buy their brand now. Others are engaged in fierce competition with rival brands and then there are the corporate image campaigns to consider as well as new product launches, where it is not known for sure who will want the product. Also, most ad campaigns develop momentum over time. A single exposure, no matter how well targeted, does not guarantee that the targeted viewer will bother to watch the ad. You need repetition to get your point across and sustain the effects of the campaign. Recognizing the problem of over exposure, most TV adertisers use pools of comercials to mitigate the effects of redundancy.
Finally, as regards the TV networks and cable channels, sure they are losing some viewing tonnage as well as some reach due, mainly, to the SVOD services. And, certainly, they shoud be taking steps to counter these defections as well as launching their own SVOD services. But the idea that the great mass of the viewing public is about to defect to Netflix and company and virtually abandon "linear TV", as propounded by some posters, is not justified by the facts. At present, the SVOD services have "captured" about 8% of the total viweing pie; some of this has come at the expense of the broadcast networks, but much of it reflects losses by the cable channels, pay cable, included, as well as local station programing. Such losses were to be expected with the advent of SVOD competition. So the "linear TV" folks will have to adjust. Their share may drop to only 70% of all viewing, over time, but this will supply prenty of GRPs and reach for most advertisers.
Typo alert: make that "plenty" not "prenty" in the last sentance, above. Drat.
Ed Give up the Ghost
Relevancy is Very Feasible.
Sizing down is upon the media companies that hide behind the bundled payTV model.
Linear TV will need to be re-invented.
Broadcasters do not innovate. The West Coast innovates.
Connect the dots. Ed I don't kinow anyone that runs home to watch the 6 o'clock news....
Ed, Thanks for the comment and catching the type. As to you suggestion that my recommendations are not feasible today, I asolutely disagree. Each of them are possible now, particularly if folks don't let the pursuit of perfect get in the way of better. One, TV companies can easily step up their ad sales marketing efforts. All they need to do is copy what YouTube and Facebook do. Both of them are great at it. Two, TV companies can do some simple analysis of Nielsen's Audience Watch or wtih Rentrak or TiVo and see where they are over-delivering campaign spots to the same heavy TV viewers and adjust their rotations and day-part mixes to reduce the dramatic over-frequency. They can probably reduce the total GRP's by 10% and give advertisers 5% lower rates, have a better experience for all and another 10% of inventory to sell, which is needed today given some of the ratings declines. Three, all of the TV companies are doing something in the app and VOD offerings, they just need to add more intensity and more risk-taking to their efforts, I think. They need to be buidling CCRM (consumer customer relationship management systems), just like digital publishers do. Four, as described in Two above, there are a lot of win-win yeild optimization opportunities. They just need to dgi far and wide and make it a key strategy in their business. Historically, waste was their friend. No longer.
Dave, I'm really surprised by your assertion that the TV companies---I assume that this means the broadcast networks and cable channels----can use "big data" set usage findings or TiVo data to determine where they are overdelivering ad exposures for an advertiser and then redirect these exposures by shifting dayparts and "rotations"( commercial placements? ) to place more weight against moderate and, I guess, light viewers. This kind of thing is a media planning function and is why various brands use different daypart, network type and program type mixes in the first place. What's more, when a buy is made, the media seller cant arbitrarily reconfigure the schedule---even if this were possible----so as to redirect exposures away from heavy viewers to other segments of the population, so as not to irritate those who are heavily exposed. That may be possible in digital but not in "linear TV". I should also note that for every exposure you gain among moderate to light viewers you lose something like 2-5 exposures against moderate to heavy viewers, so the trade-off benefit, in terms of cost efficiency and share of voice, relative to competing brands, isn't there. When you use TV, you have to accept that some people are going to "see" your campaign a lot more often than others.
Actually, I happen to agree with you and my fellow poster, Leonard, in many respects, regarding new ways of doing things on the programming and ad selling fronts as well as getting much more heavily involved in digital, where the TV Establishment is concerned. The broadcast TV networks, in particular, have lagged well behind, in part because they continue to maintain the fiction that they are targeting the entire population with their fare---even though the data shows a preponderance of their GRP weight going to the older end of the age spectrum. Where we part company is on how these changes will be orchestrated, how quickly, and in what areas. There is way too much emphasis of the promises of miricle cures using "data" as a substitute for common sense, when, in fact, the "data" is not even close to perfect and, even if it were, deals with only the cost efficiency part of the equation. There's a great deal more to it than that. Just my opinion, as always.
Ed, yes, that is exactly what I mean. Our analysis of audience ad deliveries ad the spot level shows that most networks (and we've analyzed all of them) can achieve 10-15% target reach & frequency optimization just by moving spots within the promised dayparts to the optimal pod. You don't need to move between days or dayparts to achieve that result. If you take away the day and day-part constraint, the optimization opportunity actually goes up to 40% or more.
Ed, also, I am very much in agreement that just applying common sense would dramatically improve TV media planning, buying and delivery. In fact, if everyone in the industry would read Erwin Ephron's book, "Media Planning," and do what he says, the entire industry would be optimized by 10-15%. We give a copy of the book to every new hire at Simulmedia.
Ed how do envision Programmatic for linear TV?
Some predictions for the future.
1) Just as we are seeing in digital, the moves to smarter targeting are creating real efficiencies and performance for marketers. This means that less TV dollars will be sold directly and instead be bought based on targeting parameters. Unless a channel is a high-value niche, the amount of ad dollars they will win will start to erode as TV marketers use fewer and fewer impressions to meet their needs. Only the largest channels with the largest audience have the real potential. Witness the rise of Facebook as a platform which has taken money away from all digital publishers.
2) Can the MSO's be the platforms of the future? There is a role to be played here as they stand the most potential of "seeing" audience across multiple channels, and targeting across those multiple channels. This in theory is way more efficient for marketers that can't manage a series of small buys across 100 channels. Or will Facebook run away with this?
3) The amount of traditional cable channels will fade with time but will be replaced by more digital channels going OTT, direct to consumer.
4) The economics start to get real challenging. There is not enough ad dollars availabe to fully replace a market of ad dollars and subscriber fees. Today's cable bundling gives life to second-tier channels with smaller audiences which won't have much of a future. They are an after-thought to most consumers and will never have large scale audience that is willing to pay direct as subscribers. That means their already small audience starts to erode, which makes them even less attractive to advertisers.
Only the largest channels of interest, such as ESPN and Showtime, will be able to garner consumer direct subscriber fees to scale. The rest of the channels and programming will again be subject to some form of bundling - but who will the new bundlers be - Verizon, Time Warner Cable, Netflix, Amazon, someone else?
5) So, what happens with broadcasters. Can you imagine a world where TV stations could transmit their signal OTT to you for free? And you could pick and choose from a series of channels and watch when you want? And all you would need is a simple antenna you could put on your house? Oh, we've been doing that for decades. Now what happens with spectrum becomes real interesting when it becomes vital to connect with people all the time - something the wireless phone carriers like Verizon do today.
6) The future will include live event, on-demand and regularly scheduled programming. Consumers are interested in all 3 today, with on-demand increasing quickly.
Jaan, you make very good points, all of which I think that TV companies would do well to pay attention to. One of the key issues that will determine the 1) issue you raise is whether TV is able to bring in newer and smallers advertisers with more targeted, ROI-centric packages to make up for the smaller ad packages that will be bought by their legacy advertisers. There is a real possiblity that they could get shapper marketing money if they could make their packages more performant, predictable and provable. If they are able to bring new dollars to the table, things could go well for them. If they're not, you're right, they could be in for a tough time.
Leonard, if by "programmatic" you mean a real time buying/selling system that optimizes target audience GRPs---or "impressions" ----at the lowest cost per viewer, and has the full cooperation of all major sellers for 90% or more of their GRP inventory----I don't see that happening. Allowing advertisers to cherrypick among their shows and giving up the ability to package their programs together and negotiate deals, would be suicidal fotr the broadcast TV networks and many cable channels---In my opinion.
That said, I can see quite a few situations where TV is bought as a commodity, without much consideration for program environment and other non-data issues. I can also appreciate the problems faced by so-called "long tail" channels/networks, which can't afford to maintain the kinds of sales operations as the big boys and are often overlooked by national TV buyers. Finally, I believe that national and, to a lesser extent, local spot buys may be adaptable to automated systems, providing the sellers understand that they must stick to their rates and air the spots as ordered, without arbitrary pre-emptions to cash in on last minute local buyers who are willing to pay more for the same time. Spot sellers must also accept the firm audience guarantee system now in place nationally.
I can imagine a time in the not-so-distant future where the kinds of TV, listed above, plus last minute distressed merchandise of any kind, goes into opportunistic programmatic buying pools, with almost all of the sellers participating, all abiding by what amounts to a fixed rate card, no negotiating system. The advertiser who is so inclined would make the standard "premium" buys that are considered essential to its marketing plans directly with the sellers, as before. However, advertisers who needed local market heavy up weight or those looking for low cost, added tonnage nationally, could turn to the programmatic pool and buy opportunistically.
Finally, if you, Dave and the others happen to be correct in your assumptions about where TV is headed---and this is always a possibility---then programmatic--or something even better----fits in perfectly. Now, advertisers are "connected" to consumers and they are using many fewer GPRs but targeting only those people who are in the market. In this wonderful world, where everyone is totally free to watch only what they want, when they want to and pay less than now, and they almost never see an ad that has no relevance for them, America will witness an economic revival of epic proportions as sales go through the roof, while happy viewers are freed from the deluge of thousands of unwanted commercials and both advertisers and the TV guys are scoring record profits. In that data-drived world, programmatic---or whatever it morphs into---will rule the media buying and, probably, the media planning world. As for myself, I'll turn to copywriting, or, maybe, I'll run for President.
Dave,
One of the things that often prohibits smaller advertisers from using TV is the cost of quality creative production. I think that finding ways to produce high quality to spots a a fraction of today's costs is a critical factor in making this all work. No one wants to be subjected to more ads that look like those from the local used car dealer (at least I don't!)
Great point Neil. It would be in the TV ad industry's interests to help build up some of the crowd-sourced creative companies (mostly built on networks of agency freelancers) that have had some difficulty getting real traction, in spite of doing some very good work.
The future of TV advertising will be much more targeted and will encourage businesses who have never advertised on TV before to now do so. This is happening in the UK already with Sky Adsmart and 70% of users had never used TV before. http://www.campaignlive.co.uk/article/1311746/sky-boosts-sky-adsmarts-targeting-capabilities-advertisers
Creating content is getting easier and easier which is why some youtube channels have larger audiences than many TV shows. It's all about the content (the story telling) and not the production quality. Although I agree with Neil that we don't need anymore used car dealer type ads :0)
More targeted, more users of TV, premium inventory, better ROI
Michael, thanks for pointing out UK moves in this area. Another area where the UK TV industry has led well is in proactively driving thought leadership and market moving research with Thinkbox.
I hate to be the wet blanket in this discussion, but if the advent of "super targeting" actually enabled the major TV spenders to trim their TV spending by, say, 50%, there had better be many thousands of small fry advertisers out there dying for the chance to be on TV, in order to make up for the lost revenue.
Actually, were it possible for the new TV that is envisioned, to juggle scheduling to the point where many more ad impressions were really aimed at people interested in buying each product, and this, in theory, allowed the advertisers to cut back on the number of commercials they aired, I would think that the sellers would exploit the enhanced value of their new found targeting capabilities by demanding major CPM hikes---thereby causing advertisers to maintain or increase their spending, not reduce it. The higher CPMs would probably negate most of the presumed benefits of the improved targeting.
Of course, it's possible that the new TV magnates might be making so much money with their far flung digital enterprises that they wouldn't care about maintaining their ad revenues.....but I might be wrong about this.
Ed, you are a million miles from being a wet blanket and make good points. I actually expect advertisers will gladly pay higher CPM prices for less waste and better results.
Ed, you've raised the $64,000 question. I totally agree. If TV advertising is going to grow in the optimized world that is unfolding, TV companies needs to learn to serve thousands of smaller advertisers efficiently and deliver predictable, provable and profitable ROI. They're never really done that before. TV companies' capacity to do it over the next few years will mean everything for the industry.
In order to get that specialized target you are going to need more personal information about me to which you are not entitled and I will prevent that as much as I possibly can whether I have to give up a discount, shop somewhere else or miss an opportunity. Then with any of the changes anyone suggests, the money is is the bags. Who is going to pay ? Who is going to get paid ? How much for either and what will be accepted ?
Paula, actually, none of the optimizations that I described require personal databased ad targeting, only reallocations of ad spots according to broad datasets. To be sure, as TV becomes more addressable and as advertisers want more predictable and provable ROI, we will see the introduction of more audience data. However, even for most of that, it won't require personal data, only the usage of anonymous of anonymously matched data, such as closing the loop on ad deliveries by tying what ads people view to what they buy.
One marketers wastage is another marketers message to their new customer growing their consumer base that they didn't know was out there.
Read Prof. Byron Sharp's "How Brands Grow".
John, it's true that one's waste may be another's growth, but 50X frequency against the same audience in a few weeks - what movie studios do to heavy broadcast prime viewers - doesn't help anyone. There is some waste that is just waste.
Folks - Dave is dead on. TV measurement is broken and the traditional currency is no longer adequate in calibrating the true value of television advertising. While much of the hype surrounding addressable advertising centers on its ability to deliver pet food spots to pet owning households, the real value of addressable is its ability to measure (and cap) TV ad impressions at the household level. More relevant TV ads are a welcome change...but not nearly as valuable as more relevant ads delivered with the right level of frequency...at the household level.