Commentary

Virtual Pay TV Providers May Soon Battle Over Ad Inventory

With talk of legacy TV companies fighting each other to gain a streaming D2C (direct -to-consumer) advantage, some virtual pay TV providers -- those that carry many individual apps/platforms -- continue to look at long-term revenue gains.

And that may center on advertising.

One battle is between Amazon’s Fire TV, its set-top box app/platform service, and Walt Disney, in connection with its forthcoming Disney+, per The Wall Street Journal.

While Disney+ on its own D2C platform won’t have advertising, Disney associated content on Amazon Fire TV might. Amazon is focused on getting 30% to 40% per hour of advertising time, according to the report. Disney only wants to give up 10%.

In the traditional pay TV world -- say on a cable system operator -- TV networks groups have focused on the carriage fees -- which can be as little as 10 cents per subscriber per month for modest TV networks to as high as $7 for ESPN.

But the advertising piece of those deals has always been more or less stagnant for many new and renewals agreements -- typically two minutes a hour.

So a cable TV network might run 12 to 13 minutes of national advertising time. Add to this two minutes for local advertising (cable, satellite, and telco providers) with the remaining couple of minutes slotted for national/local on-air network/station program promotion.

All told, overall non-program content time for a cable network, on average, could be anywhere from 15 to 17 minutes per hour. And the biggest piece -- national advertising minutes -- continues to slowly climb.

It’s no secret Amazon Fire TV’s main competitor is Roku, whose stock-market prospects have been heighten over the last year or so because of rising trends for ad revenues. This, in part, comes from Roku’s deals with channels/publishers, in which they also retain a portion of advertising time. The typical amount is a 15% to 20% share per hour.

The traditional pay TV deals of two minutes per hour -- part of overall carriage deals, are near this level -- roughly 14% to 15% an hour share range. But for cable operators, that local cable advertising inventory -- while important -- has never been the main driver of their TV-video content businesses.

Amazon may see advertising in another light -- especially given its growing ecommence retail dominance. Many analysts believe Amazon has been targeting higher ad revenues to supplement deals with marketers to sell their products on their site.

The irony is legacy TV companies have started up D2C streaming platforms, in part, to avoid these battles. You know, those high-profile, sometimes incendiary public squabbles resulting in long-term TV network blackouts.

Look for advertising in the virtual pay TV space taking on a different kind of messaging in those TV network/distributor battles.

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