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Digital Video Ads Have Better ROI Than Broadcast, But Only If You Are Already Spending Big In Broadcast

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A study assessing the impact of all video-based advertising on sales has demonstrated that if you spend a high proportion of your overall video advertising budget on broadcast TV you can expect a higher return on investment (ROI) from any budget that is allocated to digital video. When broadcast inventory is 5% of the overall video advertising budget, the (digital) video ROI is lower than linear TV. But when broadcaster inventory reaches 60% of the video campaign, digital video advertising spend achieves an ROI that is 2.5 times higher than broadcast television advertising.

One of the top-level conclusions is that digital video advertising does drive sales but it needs to be part of a campaign mix that includes broadcast. Any campaign strategy that materially reduces the overall portion of broadcast inventory on a campaign will negatively impact ROI from digital video, so broadcast should play a significant part in the campaign mix, the study found.

The findings stem from analysis conducted by Gain Theory and commissioned by Videology. Gain Theory is a global marketing foresight consultancy and Videology provides buy-side and sell-side programmatic solutions focused on the needs of television and premium video.

The bigger the proportion of the overall video advertising budget that goes into broadcast TV, the more ROI you get from digital video ads
The bigger the proportion of the overall video advertising budget that goes into broadcast TV, the more ROI you get from digital video ads

On average, the ROI (in terms of gross revenue) for digital video advertising was 1.27 times higher than the ROI for television advertising. But this masks a dramatic range in the figures, with some digital video advertising achieving an ROI of around one-fifth of what you get from broadcast TV and some digital video hitting nearly three times the broadcast ROI. This massive variation is explained by what advertisers were spending on broadcast TV as a proportion of their overall video advertising budget.

According to Videology: “Video does not unilaterally deliver a better ROI or scale than TV but when part of an appropriate AV [TV and Video] mix, it does deliver a more effective ROI. Video certainly complements TV.”

The company has used the study to highlight what it believes is the perfect TV/digital budget split if brands want to maximize the ROI on their digital spend and also create the greatest offline sales impact. Although it differs by brand, digital video advertising should make up 12.8% of the overall AV mix, Videology claims.

“Gain Theory looked at the current percentage of video as part of the planned AV budget for the brands in this study. This averaged 5%, ranging from 3% to 8%. An optimal mix is an average of 12.8%. The percentage of [digital] video, in most cases, should increase,” declares Matthew Chappell, Partner at Gain Theory.

Digital video helps to drive scale and reach and therefore volume of sales, Videology says. And the importance of digital video advertising to a campaign depends on your total overall budget. “At low levels of spend, video is more effective at building cost-effective reach. When you get to medium levels of AV spend (£5m-15m), TV tends to take the lion’s share of AV budget, given the higher reach and lower cost per thousand of this channel. Once you move past the £15m mark you reach diminishing returns of efficiency in TV and video starts to become a larger part of the mix again.”

This study was designed to analyse the impact of video in driving offline sales (in-store purchases) for a number of brands (across different industries) over a significant time period and across multiple campaigns. Advertiser first-party media spend and sales data, Videology campaign data and Gain Theory econometric modelling were used to get to these results. The brands in the study had varying budget levels, target audiences and creative messages for their TV and video campaigns.

Talking about digital video, Rich Astley, Managing Director in the UK for Videology, says: “Video as a medium certainly works – with every case study showing a positive ROI. The great news for brands is that video not only complements TV with cost-effective reach and brand uplift but, critically, it also empirically directly impacts sales.”

Videology notes the value of digital video for both incremental reach and frequency objectives in a combined television/video campaign. “It goes without saying that the younger the audience, the higher the proportion of video should be. Thinkbox [the marketing body for commercial TV in the UK] research shows that all individuals spend 62% of their AV consumption on live TV. For 16-24s this figure reduces to 44%, meaning this group are consuming significantly more non-linear viewing.

“It might be that while a brand’s target audience is all adults, they are struggling to reach young adults, especially if the effective frequency requirement is high. Therefore an approach that complements TV with video increases a brand’s likelihood of improving frequency against hard-to-reach fragmenting audiences.”

Effective frequency is the number of times a consumer needs to see the advertisement before exposure levels are deemed appropriate. Gain Theory found that this can vary a lot – and if people need to see an ad twice or five times it has implications for the way you balance TV and digital spending.

“If we know you have to reach your target audience X times, and that any failure to reach this results in the message not cutting through, then reach will have to be sacrificed to achieve this frequency,” Videology explains. “This is more easily done with [digital] video as, just like with niche target audiences, you can pinpoint a group and manage their viewing frequency via enforced frequency caps, which offline media cannot guarantee.”

Video is effective at driving incremental reach, especially if your effective frequency requirement is high, the company notes.

These considerations are more acute when handling small AV budgets (defined by Videology as £0-5 million) because at these spending levels you have to make a trade-off between reach and frequency. “Video is a more effective targeting proposition when you have a niche target audience. It is going to be harder to effectively reach these consumers through TV (or even out-of-home or radio), whereas video lets you pinpoint these consumers effectively.”

One thing that pulls ROI downwards for digital video advertising is short-burst activity. Videology says this delivers a lower comparable ROI (against broadcast TV) because video takes longer to build reach than television. “We found that longer burst activity drives a greater ROI than short burst activity for video.”

You can read the research for yourself here.

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