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Ad-supported TV is keeping its head above water, but needs to start swimming

GroupM has been describing the dangers and opportunities facing TV
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Television has been great value for money for 70 years but is becoming less of a bargain as prices rise in response to shrinking supply (of audiences) and constant demand (from advertisers). The big question is how much further the price of TV can rise before it ceases to be a good bargain at all, and it may already be approaching that point if you are targeting under-35s. These were a couple of the observations from Rob Norman, Senior Advisor to GroupM (the world’s largest media investment company) after the company released its second (now) annual report, ‘The State of Video’, this week.

This report is described as commentary rather than research and is intended to provoke thought. Speaking about the themes within it, Norman offered a generally positive outlook for TV as an advertising medium. But a sustainable future depends on transformation, from better use of data for audience buying (as well as planning) to more addressable, with the latter possibly boosted by vertical integration of content owners and distributors.

Perhaps his most important prediction is that a media buying industry “where the wheels are spinning so fast” is going to focus on three fundamentals when judging media in the years ahead: business effectiveness, including attribution of activity to media; what he calls ‘internal’ measures of media and marketing, designed to determine if you received what you paid for – so reach, frequency and viewability as examples; and perhaps most notably, societal responsibility.

Expanding on this last point, he says: “People are going to be looking very carefully at social impact issues, thinking about what effect some of their distribution partners and their marketing have on the world. This does not only mean brand safety – it ranges from electoral manipulation to the effects of screen-time on children. It is about a real understanding of societal effect.”

And there lays the opportunity and the challenge for the television industry. We all know it rates highly on social responsibility, and viewability is peerless. But reach is under pressure, and demonstrating business outcomes against exposure is a big job and a by-product of the technology and process transformation that is needed – and which at some leading TV providers is well under way.

It is hard to make broad generalisations about TV, despite national newspaper headlines, and the GroupM report mirrors the industry nuances. Thus, it states that the market (buy-side) under-values the ROI that television delivers and that “linear television is still perceived to be as effective as ever, despite the absence of granular measurement.”

It points out that television is attracting new advertisers, and their use of TV reflects its core strengths around reach and brand building. “The ranks of television advertisers are swelling with new entrants, mostly direct-to-consumer businesses that have exhausted all the reach and awareness ‘performance’ media afford them,” it declares. Norman adds: “They reach a point with performance media where there is no more growth. Then they have to go on TV.”

But there are warnings, like about the cost of reaching younger viewers. “The value of TV – the bargain that it provides – is seriously in question for audiences under 35 [years of age],” Norman argues. “That is why so much money ends up at Facebook and YouTube.”

‘The State of Video’ says explicitly that TV is not dying, but also that there are no signs of life in linear television. “Ratings continue to fall. Even mainstays like the National Football League [in America] have lost popularity for reasons upon which no one can agree, but everyone has an opinion. And, no new ad formats have emerged to suggest a sudden transformation for the better.

“The solace for those selling linear television lies with sustained advertiser demand even as audience supply has fallen; inflating unit costs are the silver lining of audience scarcity.”

Norman believes the increased prices mask the danger that the ad-supported TV industry faces. “We have to grow total impressions or eventually everything comes apart,” he warned. He adds: “If it were not for the brand safety issues on YouTube and viewability issues on Facebook, TV would be in a considerably more perilous state.”

The factors that sustain TV are not wholly positive. “Lots of its persistent strength is the lack of alternatives,” Norman says. He also flags the loyalty of older viewers, who rather happily (for TV), tend to have much of the money today.

More interestingly, “Millennials and younger people rely so much on the money the earlier generations have, to do things, it is not a total catastrophe that TV audiences are older.”

Norman points to a closer focus on media effectiveness over the next few years, applied to everything buyers are using.  “There is going to be a lot of work on attribution modelling and effectiveness.”

GroupM, whose agencies include Mindshare, MediaCom, Wavemaker, Essence and m/SIX, notes in its report that we are still a couple of trading years away from a measurement solution that understands viewing patterns across all screens and channels, even in the most advanced markets. Norman thinks it is plausible that these will show a lift in unduplicated audiences for TV.

“I think it will restore some of the younger audience into the TV numbers. There is a seeming car crash of declining 16-34 audiences and that will look better when they are reconsolidated in a total video package.” He is also positive about the accuracy of the data, including identity, coming from digital broadcast services.

The report flags the importance of television consolidation – and suggests vertical integration of content owners and distribution companies could help accelerate the roll-out of addressable TV advertising. GroupM continues to view this capability as a crucial step in the TV advertising transformation.

“Should these merged companies succeed in making their owned inventory fully addressable on their platforms, it will help realize the long-promised future where TV is a more efficient, targeted and digital-like medium,” the report states.

One of the interesting questions with addressable, according to Norman, is who will gain most – the national advertisers and major brands who benefit from more precise targeting, or a medium-tail of 5,000-10,000 smaller advertisers who could come to TV. He believes we could see a phenomenon he is calling “the long-tail of the short-tail”, although this relies on the industry finding a way to generate more creative cost-effectively.

“Is McDonalds one advertiser or 1,300 [the number of restaurants in the UK]? Is McDonalds or McDonalds in Bromley the advertiser? Is Morrisons [the supermarket chain] one advertiser or 500 [the number of stories they have in the UK]? Morrisons is one of the largest food growers in Britain, with a huge amount of local produce in their stores, so the idea of using local produce and a local addressable footprint sounds like a good one to me.

“If we can get our heads around the production conundrum, the main beneficiaries from this new opportunity can be the long-tail of the short-tail.”

Norman believes that, since classic linear with the best reach carries a premium, and targeting carries a premium, television providers offering both should be able to make more money in total. Addressable is also viewed by GroupM as an opportunity to reduce ad-load and so improve the viewing experience, something that is a clear concern.

The report highlights efforts to reduce ad-load and advertising lengths at some U.S. channel owners. Norman thinks a good place for the TV industry to end up would be a mix of 60-second and six-second spots, the former doing the serious story telling with relatively low frequency, and the latter providing high-frequency sign-posting.

The focus on ad-load and viewing experience is, like many things in TV today, driven by competition from Netflix and other challenger SVOD services. ‘The State of Video’ refers to research by Morgan Stanley showing that in the U.S., 20% Netflix penetration was the magic figure (or not so magic for broadcasters) after which linear TV viewing started to decay in near-perfect correlation to deeper Netflix penetration.

GroupM notes that we have passed the 20% mark in the UK, Germany and Sweden and gives some figures from Ampere Analysis to demonstrate how much lower linear viewing is in Netflix homes, compared to the national average, in these markets (spoiler alert – it is 16% in the UK and is much worse in Germany). You can read the full report here.

The report does note that these homes may have been light linear viewers already, and the linear loss rate might improve as Netflix penetration increases in Europe.

For advertisers, the problem with higher Netflix viewing is that it contains no advertising, which means potential eyeballs are lost (maybe for hours every night). There is some good news regarding ad-supported OTT: GroupM is heartened by the fact that various services that are considered unprofitable in their own right will survive because they are helping to drive related businesses, whether that is broadband or mobile subscriptions.

Despite all the concerns for TV advertising, GroupM has used this report to point to the light, and a change in sentiment among some advertisers is one important example. Norman says TV will be helped by the way a previously ‘faith-based medium’ is becoming increasingly informed by fact and data at a time when “so-called” fact-based media have come into question because of the way they measure, as well as the environments they offer.

“If some of the ‘fact-based media’ is becoming too hot to handle for some people, and TV has addressability, we can have a non-doomsday scenario [for television],” he says.

And there is good news for agencies too, based on the fact that no medium has all the answers and you need to work out the best mix. The report says, “The purpose of advertising is to create demand and then harvest it. All channels have the potential to contribute to both.

“As markets have become fractured, too much time has been spent in pursuit of single-channel metrics, like ‘My search budget performed better than your programmatic spend’, and not enough time has been focused on cross-channel allocation, optimisation and attribution. The marketer’s incentive is to make more money by selling more stuff more efficiently. That’s a holistic goal requiring holistic strategies and tactics. This is where media agencies continue to deliver value to their clients.”

You can download ‘The State of Video’ here.

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