Let’s say you're the CEO of a TV company. And let’s say eMarketer comes in and estimates that “total programmatic TV spending -- national, local, and OTT -- will hit $2.8 billion in 2019 and $4.7 billion in 2020.”
Here are a number of things that most surely will be going through your mind:
Number one: How do you accelerate this growth? It’s clear that advertisers -- your clients -- like the programmatic way of procuring ad time. So you’ll need to ensure that you offer it and have the right technology, people, relationships and data to pull this off.
That brings us to number two: You know that your company is becoming less and less advertising-dependent, but at the same time it can’t do without the revenue. The industry seems to agree that companies like CBS have decreased their ad income dependency to around 50% or slightly lower.
Income from content rights is growing fast, as Amazon, Netflix, Hulu, Roku — but also cable companies, mobile phone companies, social media networks and others — pay handsomely for content. The challenge in this model is that your content cannot be commercialized by your company through ad sales, as it appears on “someone else’s” platform.
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At the same time, 50% of your revenue is still generated by good old TV ads on your own platform(s).
It’s also true that cable retransmission fees are coming down because cable and network TV attract smaller and smaller live TV audiences.
To make matters even more complex, it isn’t that total viewership is shrinking, it is shrinking on the platform that generates just shy of 50% of your revenues. Price increases on ads have made up for this in the past, but that isn’t an option going forward. Advertisers and agencies simply won’t accept it.
Your company has also decided to invest in launching its own VOD distribution platform, as that will generate another income stream for the content it already owns and distributes. However, this is obviously another investment before income — but could also be an opportunity to generate additional ad income.
All this leads to consideration number three: investment in people and technology. It’s clear you’ll have to invest before reaping rewards. So you’ll need to carefully balance your investment in these new opportunities versus the old way of making the green stuff.
How many salespeople will you need going forward? What is your plan to gradually reduce their numbers? Which skills do you need to retain within the ad sales function, and which skills can you dispense with? And can the investment cost potentially be offset by the reduction of the traditional of ad sales operation?
Are you going to let the same salespeople represent the new platforms to your advertisers and agencies, or are you going straight to an automated solution? And will this platform be an integrated or a separate offering in ad sales and ad cost?
And finally: How do you demonstrate ROI to advertisers when you only have fragmented data across some of the platforms where you offer your content? How do you convince them to buy into a platform if you’ve got no GRPs?
Is it time for lunch yet? This stuff is hard!
Maarten, I think that you may be overstating a number of your assumptions. First, what makes you believe that most of a TV company's advertisers prefer the programmatic way of buying media. That may be the most common method for digital media and often by smaller advertisers and DR marketers---though it's got many issues---but certainly not for national TV where the programmatic wannabies have run into a stone wall of resistence.
Secondly, while average minute ratings are, not surprisingly, being sliced and diced finer due to greater competition for the viewers' attention, TV remains a huge bargain for advertisers. The typical CPM for TV---national and local including all ad lengths, all demos, all sellers and dayparts is around $15-17 and its rising about 5%----sometimes more----yearly. But that works out to only a penny and a half per viewer. Even if half of the viewers pay no attention per ad "exposure" its costing you a mere 3 cents per viewer to contact them. How does that compare to DR on digital? Just about every marketer I know of is charging more every year and giving, at best the same amount or, often less in return. That's called inflation and its a fact of life in business. Why should TV be different?
Third, concerning re-transmission fees, the cable systems may be losing subs---though not at the cataclysmic rates that some assume---but they are quite profitable and the re-transmission fees they now pay the broadcast stations----which are shared by the networks--- as well as what they pay to the basic cable channels will probably continue to grow for the immediate future---though perhaps to a lesser degree than the current rates. But I agree that it is folly to count on these incomes long term and I also agree that a TV company should be exploring OTT distribution, new programming concepts for same, etc. as well as new ways of selling its TV time. In the latter case, NBCU's effort to reorder the length of some of its commercial breaks in order to dramatically reduce ad and promotional clutter while charging time buyers a huge CPM premium is something that all TV companies should be watching closely---very closely. Imagine the P&L impact of taking 20-25% of your GRPs and charging 75% more for them, while reducing the amount of clutter by 10-20% in your other breaks as a trade-off. The net gain could be 10% or more in ad dollars---all pure profit.
Finally, I do not believe that a media seller is obliged to demonstrate ROI to advertisers who buy time or space as this inevitably leads to some sort of guaranteed outcome in the negotiations. Since the media seller has no control over the appeal or quality of the product being advertised, nor the way it's positioned in its ads, the best any time or space buyer will get in terms of ROI or outcome guarantees is going to be watered down to the point where the seller rarely gives back much---hence the guarantee is basically useless.
Good response Ed. And programatic is sold sign on to sign off, most times you cannot pick your nets. Smart media buyers build buys with reach and frequency goals using a combonition of rotations and fixed programming.