Commentary
Hanlon: Addressable TV's 'Inevitable Moment' Is Coming
- by Karlene Lukovitz @KLmarketdaily, July 8, 2016
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.
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“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.”
Karlene Lukovitz is editor of MediaPost's "Digital News Daily" and writes the weekly "Video Insider" and "Advanced TV Insider" columns. You can reach her at karlene@mediapost.com.
There are a number of issues limiting the growth and acceptance of "addressable TV" which we will be dealing with in an upcoming edition of "Mediology". One of them concerns the problem of sellout. Say you sell one of those few commercials to an upscale oriented marketer who, quite naturally, selects that 10-20% of your coverage---probably defined geographically----as mainly upper income. Fine, now what do you do with the remainder of your audience---the mostly low brows and middle income homes? Who's going to pick these up---and at what CPM? If the national cable channels were to make all of their commercial time available---not just the two minutes per hour allocated to the cable systems and satellite distributors-----this would pose a huge problem. Let's face it, most of the "addressable TV' activity is either upscale oriented or ethnically driven. Until that changes and mass marketers see any value to this concept as it is now executed----at affordable CPMs---progress will be slow.
I love this
While Tim clearly has a good handle on the major challenges facing Household Addressable TV Advertising, the comment made by Ed is well off the mark. Having been involved in the addressable TV ad space for more many years now, I can assure you that most addressable TV advertising campaigns are neither upscale oriented or ethnically driven. In fact, the main application of household addressable TV ads is to discern or differentiate between current customers and prospects (the highest value application for household addressable TV ads), target different customer segments with more appropriate messages/offers (e.g. cross-sell and up-sell), or target different prospect segments with more appropiate messages/offers (which may include targeting based on affluence or ethnicity, but this is no different than using traditional or digital media that is focused on these audiences). Regarding who buys the "left over" audience after a particular segment is targeted, and at what price, the more marketers are using household addressable TV advertising, the easier is to pair up complementary advertisers. One advertiser may be looking for high-tech households, another for households with dogs, and yet another for detergent buyers that live in areas with hard-water. While there may be some overlap across these segments, the advetiser willing to pay more for their segment (or is a larger overall advertisers) will likely get preference, but the others will still get to target large portions of their specified audience, and perhaps a grocery chain pr other more general audience advertiser will pick up the left overs at a reasonable CPM considering that every household buys groceries but they can use addressability to differentiate their messaging by defining target segments based on whether they are current customer and/or what they typically buy, using their own loyalty card data.
All very fine in theory, Claudio, and it would be terrific if things were so simple---but they are not. Setting aside the question of who is currently using "addressable TV", though my information---which may or may not be complete----indicates that it is mainly upscale targeters, not mass marketers----another question that arises concerns how do you translate household, or set usage----audience data into viewing? The usual answer to this takes us to the standard spiel about using "big data" set-top-box "granular" information to determine which TV shows the targeted viewer is watching. Except it is a well known fact that a typical household resident watches only half of the programs that the home tunes in. So, assuming that you are targeting the person who actually buys or influences the buy, how do you know if that person is watching? Answer: you don't.
I have nothing against the concept of addressable TV however it seems to me that it is a technological capability---the ability to deliver a commercial to a specific receiver in a specific household----searching for a media selling function. Of course there are better ways to target than adults 18-49, 25-54 or that absurdity, adults 35+. Anytime an advertiser want's to know which TV shows a heavy detergent user or a frequent moviegoer or a sleeping remedy user watches this information is readily available from MRI or Simmons. And there is no ascription required---it's single source data. Not perfect but certainly indicative. Why not use that?
We will be sorely disappointed with the value delivered by addressable TV.
Seems that what we've learned online is that attemnpting to micro-target is valuable for direct response marketers (who live or die by direct sales), but they aren't delivering the total impact needed by more traditional marketers with retail networks.
Let me suggest something. A lot of this is driven by the idea of "relevance". What we now know online is that "relevant" is in the eye of the advertiser. Or, if you will, all this targeting means advertisers can choose "this consumer is relevant to me". But there's no reason to ever believe that a consumer will share that belief.
Ed, using targeted program selection is not incompatible with household addressable TV ads, as you still need to figure out where you want to place the ads to reach the targeted households. As such, you can use Nielsen, MRI, Simmons and/or STB data (such as using single person households to figure out which programs are most likely viewered by the intended target).
Claudio, I don't wish to sound as if I'm against the basic idea of "addressable TV" as this is not the case. However there are significant issues to be dealt with before this particular idea can gain real traction. One of these---and it's a main one--- revolves around the assumption that if a household is tuned in then the real target in the home---a man, a woman, both, a teen, etc. ----is watching whatever program is deemed to reach the ad's "target". I am aware that AT+T's Adworks utilizes a one-member home panel to try to get around the viewing versus tuning point I keep raising. Unfortunately most single member homes are either very young---under 30---or very old--over 60---with the latter being the dominant segment. As a result, these households are probably not representative of all homes.
By the way I'd love to see a comparison using Nielsen data, showing how close one member home set usage patterns are relative to all homes in predicting total U.S. target viewer ratings on a show by show basis for a crossection of programs in all dayparts. As for your point about using MRI or Simmons indices to select which programs to advertise in, that's fine-----but why then do you need addressable TV with its high CPMs, limited ad inventory, low reach, etc? Why not just do this against all TV homes? Sure, you can send a specific ad to a particular TV set---or device---which means that that you can tailor such ads for particular needs, interests or mindsets----but you still don't know who is watching.
I happen to be working on an upcoming "Mediology" piece on this subject and it's clear that problems abound. Nevertheless, if these are confronted---and the viewing version tuning issue is somehow solved---there might be some real potential for "addressable TV"---not to revolutionize TV advertising---as is often claimed---but as a valuable add-on targeting enhancement for standard broad reach TV campaigns.