Report - A Future For TV: IP-Delivered Video Advertising In A Connected World

written by: Richard Kastelein

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The world is changing. TV advertising growth is flat in Western Europe and the US. Whilst TV is still a hugely important medium for achieving reach, audiences are shifting across other devices. Videoplaza, working with IHS Screen Digest, have collaborated to deliver this research report on the IP-delivered video advertising space, to bring data and clarity to the industry. The first of its kind, the report examines the growth of IP-delivered video advertising, and the opportunities and challenges faced by broadcasters in an IP connected world.

Key highlights include:

  • Content providers must embrace delivery to connected devices, but there are significant monetisation hurdles to overcome.
  • TV advertising is here to stay, but fat growth in many markets (1.4% on aver- age in Western Europe and 2.5% in the US) over the next fve years necessitates diversification of the traditional ad model. Broadcasters must advance their IP-delivered video advertising strategies to ensure sustainable growth in the monetization of content.
  • An increasing array of connected devices is shaping the IP-delivered video landscape. If personal devices such as smartphones are taken into account, there are already more connected devices than PC or TV households in developed markets. This requires media owners to develop services which can be accessed via these devices or risk missing out on growth, and losing ground to competitors.
  • This surge in connected devices is leading to a double fragmentation for media owners – a horizontal fragmentation of their aggregate audience across de- vices, and a vertical fragmentation of individual consumption – split across that individual’s device portfolio. This ultimately affects delivery cost and ability to monetize an audience reach scattered across devices.
  • In order to ensure that integration costs for developing connected device applications are kept low, media owners are increasingly devolving aspects of service management to third parties.
  • Audience reach must be complemented by advertising reach, as even in times of technological innovation and new marketing paradigms, audience reach re- mains the most critical asset brand advertisers are looking for in media proper- ties. Re-uniting the audience fragmented across devices with a comprehensive advertising strategy is essential.
  • Such a strategy must be both device-agnostic – ensuring that each device, independent of its specific properties can be reached by advertisers effortlessly, but device-committed – technical integration of advertising must ft the specific device in terms of user experience and context of use.

From the report:

Advertising markets are caught between traditionalism and pressure to innovate. Conventional, linear TV advertising continues to be the preferential media outlet for brand advertisers. TV has roughly maintained its share of all media advertising in Western Europe of 29.9% in 1999 versus 28.8% in 2011. In the same period, newspaper advertising fell from 39% to 24.4%. TV remains advertisers’ first choice for reaching audiences at a national scale and for building brand awareness. Its audio-visual, narrative format lends itself particularly well to creating emotional connections between brands and consumers and highlighting product virtues.

The general virtues of TV advertising remain despite fundamental ruptures in marketing philosophy and technology. The notion of advertising as conversation is turning the classic, uni- directional dissemination of advertising messages into an interactive mode of communication.

Moreover, the rise of big data is challenging the conventions of mass-media advertising as consumers become individually addressable. But brand advertising objectives do not fundamentally change through new marketing approaches and technologies alone. Even in times of rapid techological change, the underlying need to generate brand awareness or engagement on a large scale is still pertinent.

However, despite its ongoing success in face of new paradigms, TV advertising has ceased to be a growth market in Western Europe. Across all media including TV, brand advertising as share of GDP has been in decline since 2000 and is forecast to continue eroding over the next five years. Increased pressure on pricing, audience fragmentation across digital media and rising demand for more granular and timely return-on-investment metrics from the demand side is pressing TV broadcasters to diversify their advertising business model beyond linear broadcast TV. Excluding the 2008 and 2009 recession, the compound annual growth rate (CAGR) for TV advertising across Western Europe between 2002 and 2007 amounted to 3.3%, whereas post-recession, we forecast 2010-2015 CAGR to stand at a mere 1.4%. In the US, the gap between those two periods looks similar with a historical CAGR of 4.3% and forecast CAGR of 2.5%. This poses serious questions about the economic viability on relying on brand advertising as a reliable revenue stream for TV broadcasters and other legacy media owners.

EDITOR'S NOTE: While I enjoyed the study and agree with a number of points - I just can't site back and swallow this. TV Advertising is here to stay? Fat growth? I beg to differ. Consumers don't want it - and they will avoid it when they can.

From Television Remixed: The Controversy over Commercial-Skipping by Ethan O. Notkin:

If there is one thing that viewers of network television would agree on, it is likely to be the annoying nature of commercial advertisements. One study found that 65 per cent of the consumers polled “feel constantly bombarded with too much marketing and advertising.”

In addition, 69 per cent of those polled were interested in “products and services that would help them skip or block marketing.” Part of the problem is the advertising industry’s use of the widely accepted “saturation marketing” model, which calls for massive increases in the number of advertisements. The emergence of “spam” in the last decade has also contributed to the growing perception of advertising in general as untrustworthy and disrespectful to consumers.

Reduction of scarcity via moving from scheduled TV to on-demand, PVR skipping via cloud-based and hardware solutions, and consumers general distaste for the 30 second spot, are all going to hit traditional TV advertising very hard in the next five years.

As I wrote last week - I have a much different take on this:

But the numbers are going up? The future looks good! - Despite TV Ad spend is going up as well as viewership, it's a demographic short spike due to baby boomers retiring. Baby Boomers (47-65 years old) control half of all U.S. consumer spending and watch a disproportionate amount of TV (55-plus group spends the most time watching TV, logging about 6.5 hours a day). The first baby boomers turned 65 in 2011, and a projected 72 million - about one fifth of the U.S. population - will be that age or older by 2030.

From The Demographic Bomb:

In 2010, Generation Y passed the number of Baby Boomers and 96 per cent of them have joined a social network. Most of them have smart phones and are creatures of the web, and ample studies show their TV viewing is spirally vortexing’ downwards. Long form entertainment, chopped by distracting irrelevant advertising is just not cool anymore. Not when their multitasking minds are growing up in a news nugget world where reading a book over 100 pages appears as a tome. Or busy revamping the English language – morphing it into an unrecognizable, chopped down pidgin… in a Twitter world that has created an acronymic, smilied-out, syntactical nightmare.

...Scarcity as a commodity, numbers as a game... Aggregate share of audience in the past was enormous. Find one show here in the top 46 American network prime-time telecasts ever, that was shown after 2000 (other than a Superbowl). Brands simply cannot reach their audience with fragmentation of viewer taste, the plethora of new content and other entertainment (gaming for instance) competing, and more TV gatekeepers in the living room via connected TV. One-to-many is not the future anymore. Many-to-many is here. And it's only going to get bigger.

...So what happens when scarcity is reduced? When Scheduled TV is out and 'Tapas TV' or 'a la Carte TV' is in? We all want to watch what we want to watch, when we want to watch it on what device we want to watch it on, without being bombarded by overt propaganda that has nothing to do with what we are watching. We want our content available on connected TV’s, smartphones, tablets, computers, and game consoles with consistency on all our devices and a seamless pause-resume functionality allows us to start watching on one device and continue from another as well as recordings that can be initiated from any device. Our settings, favorites, wish lists and user preferences need to port to all devices.

So what’s the solution?

Richard Gras:

At some point in the future we’ll start thinking more strategically about the marketing value associated with a second or multi-screen content experience. We’ll find ways to make sure that whether an audience is seeing ads on a big screen, a tablet or a smartphone, our advertisers are getting the same or equivalent value for their investment. As the number of options viewers have for consuming their favorite content increases, our greatest challenge will be to find new ways to deliver consistent and platform agnostic value to TV advertisers.
Richard Kastelein:
Not interrupted television. Branded Content is a solution. Preferably subtle product placement will be another way. Game mechanics with calls to action on a second screen will be a winner. More targeted engagement is undeniably more likely to get attention. Accessorizing my lifestyle works... feel free to give me added value to things I own. Freemium is pretty cool. Micropayments I can live with. Affordable subscriptions for content I really get a kick out of are nice. Let me have the chance to win something. Give me more compelling reasons to like the brands. Let me socialize what I like to my networks. Challenge me. Engage me. Give me some buzz. But don't numb me with irrelevant 30 second spots.


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