As Agencies Ramp Up Advanced TV, Will Business Models Resemble TV Or Digital?

advancedtvAgencies are developing skills and business models around advanced TV buying, just as they once did for programmatic buying.

GroupM has a dedicated department in Modi Media. IPG Mediabrands’ Cadreon, Dentsu Aegis’ Amplifi, Omnicom and Publicis Groupe also have added expertise. Even independent agencies like Horizon Media are building out advanced TV centers.

“Advanced TV” typically refers to linear TV plans optimized by digital data, addressable TV or over-the-top TV. Programmatic TV, or the ability to buy TV inventory in a real-time, biddable environment, isn’t yet a reality, although some agencies are automating the sales process for reserved buys.

And because advanced TV is still in its early days and straddles the line between digital and traditional TV, it’s still unclear which business model it will resemble most when it matures.

Advanced TV largely looks like a linear TV buy with better targeting, said Michael Law, EVP and managing director for video investments at Dentsu Aegis’ media investment department, Amplifi.

That’s because advanced TV can’t scale like programmatic digital, due to lack of automation and constrained supply, said Sam Rose, VP and director of national TV at Horizon.

“TV is completely set up differently than digital,” she said. “You can't do with TV what digital programmatic can do, at least not at scale.”

Advanced TV business models won’t be formalized until challenges with scale, measurement and consistency are solved, said John Swift, CEO of North America investment at Omnicom.

“Advanced TV has been a bit wait-and-see in terms of figuring out the best way forward,” he said. “It sits in that gray area between how our clients think about programmatic and digital and how they think about buying mass media like TV.”

But agencies still need a rudimentary payment structure if they buy advanced TV – even at an experimental level. Dentsu and Horizon are moving toward models where all video, including linear and advanced TV, is bought together.

“When a buyer on [the video activation] team gets a dollar, they have the ability to buy whatever video they think is going to best deliver on the KPI that the client has put forward,” Amplifi’s Law said. “If that is ABC, Hulu or Snapchat, it doesn’t matter.”

GroupM’s Modi, which controls at least half of addressable activity, according to its president, Michael Bologna, charges a service fee for aggregating data sources and metrics from cable operators around advanced TV into one report.

“We stitch together five businesses and tie it back to sales, conversion or attribution by re-matching impression data to determine who saw the ad,” Bologna said. “We hide and mask all of the complexity and make this stuff appear turnkey to our clients so they're not overwhelmed by all of the jargon and nonsense.”

Modi calculates commissions for each client based on time spent by teams executing the buy and cost of resources like technology, data and people.

For now, that fee is fully disclosed. Transparency is critical in the early days of any new service to prove value and convince advertisers to buy, Bologna said. But as advanced TV matures and more national inventory opens up, Modi may begin to look a bit more like GroupM’s trading desk, Xaxis, with the ability to opt in to a nondisclosed buy.

“Ninety-nine point nine percent of our business is totally disclosed,” he said. “It doesn’t mean we're not going to move to a Xaxis-like option in the future. We’re getting out of that nascent stage and into a more mature market, so we’ll see some of that in 2017.”

Not all clients, Bologna said, would be uncomfortable with a nondisclosed addressable TV buy because it offers efficiencies and eliminates risk.

“Advertisers working with Xaxis, Midas or any of GroupM’s other undisclosed practices will absolutely continue that preference over to addressable TV,” he said.

The formation of advanced TV buying units mimics that of trading desks, said Sandie Milberg, chief revenue officer at Varick Media Management: “You dip your toe into it, see what happens, and if it’s something you can make money off, there are agencies that have taken advantage of that.”

But because advertisers understand TV buys more than they do digital, margins will likely be slimmer than with programmatic digital.

“TV buying has been around a lot longer, so in terms of rates and costs there's a lot more learning there,” Milberg said. “Even if [an agency is] not transparent, I don’t think you’ll see the 60% margins that a lot of the nontransparent companies are charging today.”

For most clients, opting in to such a model will come down to a “comfort versus value trade-off,” said Scott Ferber, CEO of video ad platform Videology.

“There are certain things one can bring to bear in a nondisclosed opportunity that are more valuable,” Ferber said. “But I don’t think the nondisclosed side will be nearly as big in TV as it has been in digital, because of the Association of National Advertisers report and the trend for transparency overall.”

 

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