eMarketer summed up the currently mixed addressable television scenario in a report released in late June.
On one hand, it noted a Starcom MediaVest survey indicating that an impressive 49.8 million U.S. homes, or half of all pay-TV homes, can now be reached with addressable TV ads. Further, eMarketer estimated that addressable TV ad spending will reach $890 million in 2016. That’s up 120% versus 2015 — but it represents just 1.3% of total television advertising spending. And while the analysts project that it will jump to $2.17 billion by 2018, that would still account for only 2.9% of total TV spending.
Audience Buying Insider asked Tim Hanlon, managing director of FTI Consulting in its Telecom, Media and Technology practice, to share his thoughts on addressable television’s current status and likely evolution.
In the online world, the term “addressable” is basically superfluous, because the entire medium is targetable, Hanlon noted. But in television, the sophisticated targeting that’s possible through addressable technology has been impeded by business practice conventions designed to maintain the players’ status quo.
“It’s not that the advertiser appetite isn’t there,” he says. “Advertisers began to be intrigued by addressable’s potential years ago. The availability of just two minutes per hour for addressable advertising in cable, and the need to string together multiple MVPDs, have stalled addressable, but the interest and the business conversations continue.”
Breakthroughs Needed On Two Levels
To make addressable a viable, scaled opportunity, breakthroughs need to occur on two levels, he says.
“On a national level, cable has to break out of the two-minutes-per-hour ghetto. Addressable needs to be available across the entire hour. That would require a carriage agreement between a national MVPD and a cable network that enabled offering national advertising with hyper-local targeting capability. It would be a shift from an availability split model to a revenue-sharing model between the network programmer and the operator.
“On a local level, a local broadcast TV station group and an MVPD would need to form a carriage agreement to share revenue on advertising that’s locally addressable.”
Currently, the players are selling against one another, but Hanlon believes that we’ll see at least one breakthrough agreement at the national and/or local level by the end of the decade, due to converging market forces.
On the national level, cord-cutting and unbundling are pressuring the economics of MVPDs, which can’t raise subscription rates enough to compensate for the declines in subscriber numbers. “National advertising could help make up for the drop in subscription revenue,” he says.
Demand For Local Targeting
At the same time, local broadcasters are increasingly pressured to respond to the demand for granular local targeting. That demand is high in categories such as automotive, and particularly intense in political advertising.
“Campaign managers want to create their own target clusters, because single districts sometimes traverse several DMAs,” Hanlon notes. “The pricing for targeted reach would likely be higher, but waste in overall dollar terms would be reduced.”
He predicts that this election will be the last for traditionally structured local television buys. “There’s a stark contrast between what these advertisers can do in digital media and in local television, where they’re still having to buy whole metro areas or all DMAs in a region,” he says.
Similarly, Hanlon says, the days when it made sense for regional companies to buy national TV because the efficiencies of scale made up for the waste are numbered, if not over.
The advantages of television’s scale are rapidly becoming a “red herring,” he contends. “Marketers are now comfortable with precision targeting because of digital advertising. They don’t want to pay for waste, and there are now thousands of ways to create targeted scale,” thanks to audience data and the “IP-ization” of media channels.
“Going forward, we will see the ability to re-aggregate audiences to whatever scale is needed, by using first-party data instead of relying on proxies for audience targeting,” he adds. “Television is the last hold-out. And to their credit, media owners are to some extent already responding, by offering some data-enhanced targeting options.”
In short, the ability to realize precision targeting in television “is inevitable,” Hanlon declares. “The moment is near. It’s about to bust wide open.”