A new golden age of TV advertising to match the 1960s boom depicted in Mad Men is edging closer thanks to the promise of addressable advertising. Advertisers of all shapes and sizes will buy access to their preferred audiences rather than a specific programme or channel, and broadcasters will be able to monetise what used to be wasted reach.
Under pressure from shareholders, and competition for ad dollars from the likes of Google and Facebook, Pay TV operators and broadcasters are eager for addressable advertising on linear TV to open up new revenue streams.
To the untrained eye it might feel as if Dorothy just needs to click her heels and the transformation to addressable advertising would be complete. But for it to go mainstream, there are a number of obstacles to overcome, starting with a new model of collaboration in the industry.
The X Factor
Broadcasters and Pay TV operators need to develop a solid, symbiotic business case that makes operators willing to share their audience data and broadcasters willing to share ad revenues.
Operators hold the balance of power with their reams of data about audiences and viewer behaviour, the key to addressability. And there is an eagerness to trade it with broadcasters for a share of Pay TV addressable advertising revenues.
Operators and broadcasters have to develop a new commercial relationship where they collaborate on data sharing and technology development that will benefit both parties while allocating ad revenues in a new way. We know this is possible because we have seen data and ad revenue sharing already underway on the VOD side – for example Virgin, Sky and Channel 4.
Without collaboration other markets might start following Germany’s lead. There, broadcasters are swerving the Pay TV operators and creating their own addressable advertising solutions using HbbTV. The main challenge here is reach, with so few HbbTV2.0 devices in the market.
Another step is changing the way TV advertising is sold, because today’s ecosystem simply isn’t designed for addressable advertising. At present, ad space is booked upfront and any inventory that hasn’t been sold ahead of time is considered waste. But this model doesn’t work for addressable advertising where every slot is filled on demand using a real-time digital trading model. The cultural mindset of everyone involved in the ecosystem has to change and think about that instantly available space as an opportunity, not waste.
But the tide is starting to turn. There is so much pressure on Pay TV operators and broadcasters, most of whom are public companies, to grow audiences and increase revenues that they are starting to rethink how they achieve new revenue-sharing avenues that will ensure their long-term viability.
Another barrier is privacy, with local and international regulations, such as GDPR, restricting how personal information can be used. Germany and France have been held back by privacy concerns that have limited their ability to segment audience data, such as Germany’s Broadcasting Treaty.
Here, a focus on transparency is the key to building trust with viewers and regulators to overcome these issues.
When you need to compete against big tech’s muscle in online advertising and analytics, real-time campaign measurement is key. While online campaign measurement has been tainted by fraud issues, there is no doubt that it is still used by the industry to provide a baseline, highlight trends and deliver the insight needed to adjust a campaign on the fly.
Addressable advertising’s model depends on audience quality rather than the audience volumes that are associated with traditional channel-based TV advertising. To measure and analyse in this new way requires operators to invest in the latest technology to demonstrate the value of slots and audience engagement and determine a campaign’s impact and ROI.
To move from trading single ad spots to trading audiences, operators need an industry standard common trading currency that consistently measures audiences and their actions across all devices.
Alongside the investment in measurement tools, operators have to focus on operational efficiency and technical agility because there is little interest in adding revenues if it requires additional expense that eats up the financial gains. One requirement is a unified approach to campaign management, having a single interface to manage multiple campaigns across multiple devices and platforms. All tools will have to have the openness and flexibility to support third party services, evolving business models and ecosystems.
Who wants to be a millionaire?
The TV advertising world will change when Pay TV operators and broadcasters have to move from a world of competition to a new model of collaboration. We are getting close to the point where there is enough incentive to get the players to lower their guard and trust each other.
Once the technology is in place, the easiest way for operators to get started is to collaborate with those broadcasters who have both linear TV and OTT services. Those broadcasters are best placed to start selling addressable advertising slots alongside their traditional TV advertising space and, by starting small with just a few slots, avoid the perception of waste.
The opportunity is huge. Since Sky pioneered addressable advertising using AdSmart five years ago, it has found that addressable advertising can boost ad engagement by 35% and cut channel switching in half. Plus, addressable advertising opens up opportunities for incremental revenues from small and medium businesses that have traditionally spent their ad dollars on print, outdoor and local advertising, as well the usual big brands.
When the status quo changes and operators and broadcasters start collaborating and aggregating their advertising inventories, they will increase the size of addressable audiences, thereby creating a more compelling proposition for big brands. The benefit for operators and broadcasters is that these advertising slots with larger addressable audiences will command higher CPMs (Cost Per 1,000 impressions).
As Don Draper says in Mad Men, “I don’t believe in fate. You make your own opportunities.”