The Reinvention Of TV

We are just coming out of the annual ritual that is the TV upfronts. The news seems to be that ratings are down, prices are up and commitments to buy airtime have been brisk.

This continues to baffle many who observe the TV ad sales market. How can something that delivers less cost more and sell out?

Wait — I know one other industry where this is somewhat true: the airline industry. Although airline ticket prices are somewhat down when adjusted for inflation, it’s also true that for a somewhat lower price we get a lot less: no meals, reduced legroom, seat selection, luggage, and so on.

Net-net, we actually pay more when we subject ourselves to United. I mean, when we choose to fly, especially when you buy amenities that used to be included.

We have been witnessing a reinvention of TV content creation for a few years now. It probably started with “The Sopranos” on HBO, was accelerated by Netflix’' “House of Cards,” and has now permeated national, cable and Internet-based “TV.”



I place “TV” in quotes because I am pretty sure Netflix or Amazon do not think of themselves as TV channels, but commercial content enterprises (among other things).

TV” is moving very fast in becoming a rich data platform. And this is (predictably) leading to all sorts of new opportunities in distribution, content creation and monetization.

In the past, we could probably simplify the formula of the commercial TV industry as follows: content -> audience -> sales. In other words: TV networks created content, which then found an audience, and based on the size of that audience, a network rate card was developed and airtime deals were negotiated with advertisers. This explains why the upfronts are still focused on “parading” program line-ups and stars to entice advertisers to commit to airtime packages.

But the formula is changing. I think it now goes like this: data -> audience = content + sales. The understanding of data is driving platforms to develop content for which they have a reasonable expectation of success. It is less “Let's create a pilot, throw it in test or onto the network and see if we can develop an audience” -- and more, “Audiences that like XYC are likely also interested in ABC” (like Amazon’s recommendation engine).

Amazon, Hulu, Netflix and some other platforms are particularly good at this, because they are data companies at heart. I expect the likes of the cable providers and phone companies to become good at this as well.

The networks are just catching up, and their challenge is that a lot of the data they could use to develop the same kind of predictive skills are not generated in their own house, but through their distribution partners -- somewhat like supermarkets (and Amazon) knowing more about product sales versus the companies that own the brands. Who knows more about Coca-Cola sales: Walmart or Coca-Cola?

One shift that consequently will happen is that ad sales is moving from selling breaks in programs to selling packaged audiences. Programmatic is part of this, of course, but it is crude and tainted in its current form. One other TV network challenge: data and audience scientists are strongly present at "not TV" (e.g., Netflix and Amazon). That, in combination with thinner data and ever smaller audiences, should worry network TV a great deal.

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  1. Ed Papazian from Media Dynamics Inc, May 22, 2017 at 12:49 p.m.

    Maarten, The mystery is solved when one looks around and tallies the prices of most things we buy, then compares them with what was paid 10 or 15 years ago. It's called inflation. You pay more for almost everything---and get the same or less than before. Why should TV be any different?

    But let's take a closer look at the numbers and, again, the mystery begins to be solved. Say that you are a heavy TV advertiser---like 80% of your national ad budget. Yep, the average per-commercial ratings are down for many channels, including the broadcast TV networks. Why? That's simple. There are so many more competing channels splitting up the rating pie.  But is the total pie vastly diminished? Nope.It's down about 2-3 % in recent years and up compared to 10-15 years ago---as more channels not only splits up the audience, it encourgaes more viewing. So, even if your average commercial minute ratings per channel are down, there are still the same number of GRPs available. OK, go and buy 'em. Merely divide your buys among more channels and dayparts and you will get the 65% monthly reach and the 85-90% total campaign reach that most TV brands plan for.

    A final comment that will, no doubt, enrage certain people, is this. Digital media has been hailed as the successor to TV and many people---buying the propaganda lock, stock and barrel----actually think that billions of TV ad dollars are pouring into digital media coffers.Are we talking about digital video---which is what a TV advertiser would want. Yep, but its hardly a deluge of dollars deserting TV for digital. Rather,its a modest gain, some of which is coming at the expense of magazines---that other very selective medium----whose ad dollars are shrinking. As for TV, its ad dollars are showing gains. How is that possible?

    Why aren't hordes of TV advertisers deserting TV for digital video buys? That's also a simple one to answer. There aren't nearly enough quality video programs to sponsor or buy time in, many of the ads that are served never even make it to the users' screens, digital video can't compare to TV in average minute or overall reach, short 10-15-second ads that are the norm in digital, can not tell the full brand story, etc.etc.etc. Whether this situation will change in the future remains to be seen. But, for now, there is no mystery at all.

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