"On TV And Video" is a column exploring opportunities and challenges in advanced TV and video.
Today’s column is written by Lance Neuhauser, CEO at 4C Insights.
The new reality of consumer channel choice has thrown a wrench into the decades-old media model that funnels millions of brand advertising dollars to linear television. Competition for these dollars comes from all corners of the media ecosystem, especially as digital increasingly turns into a video platform and TV goes digital through OTT and other touch points.
Google and Facebook, the already-crowned champions of previous battles for search and social dollars, are throwing their hats into the ring for these budgets via YouTube and Facebook Watch. But the duopoly’s success is far from assured as other players nip at their heels. Not only do the next three years represent an incredible opportunity for smaller walled gardens such as Snap, Pinterest, Twitter and LinkedIn, let’s not consider TV – or, rather, the world of monetized video content – down for the count.
While traditional media companies and telcos are finding their own ways to compete in this new reality – a topic that deserves a column of its own – a very new sort of competitor is emerging in the form of over-the-top (OTT) titans: Netflix, Amazon Prime, Hulu, Roku and Apple.
The power of OTT
In a battle for ad budgets, the OTT giants have a lot going for them. Most importantly, they have eyeballs. Lots of them.
For example, Netflix now has nearly 118 million streaming subscribers globally, and it has the content to keep those eyeballs fixated. Hulu's 17 million US subscribers might seem small by comparison, but its library of 75,000 TV episodes is reportedly more than double those of Netflix and Amazon.
Netflix, Amazon Prime, Hulu and Apple are all betting heavily on original content to attract audiences to their streaming services. No doubt, these companies are in the midst of a content arms race to win consumer attention and viewing time. However, that activity has had minimal overlap with the battle for TV’s ad dollars to date. That’s chiefly because the billions that Netflix, Amazon and Apple spend on content are monetized with different incentives: subscriptions for Netflix, loyalty programs for Amazon, devices for Apple.
OTT is yet to offer an advertising product that truly competes for big TV ad budgets. That won’t be the case for long.
Seeking ad dollars in an ad-averse world
The source of the OTT giants’ strength in the current media landscape also represents their weakness in their play for brand advertising dollars. In short, these are the players responsible for retraining and enabling an increasingly advertising-averse consumer audience.
Why do people pay for subscriptions to Netflix, Hulu’s commercial-free option and Amazon Prime Video? Because, in part, there are no ads. Such an aversion also helps fuel consumer motivations when purchasing OTT devices like Rokus and Apple TVs, which enable seamless viewing of ad-free streaming services on TV screens.
But are subscription-based content models and reliance on hardware sales sustainable? Rapidly introducing linear TV’s interruptive ad experience is hardly a feasible option for OTT players. How can these companies reasonably make a major bid for ad dollars when many of their core consumers actively avoid ads? That’s the $200 billion question.
This much we do know: The ad model that will ultimately claim tomorrow’s brand awareness dollars will revolve around video. But in all likelihood, it will be vastly different from the current interruptive models that are heavily employed today. Fox made headlines with a six-second ad format, and NBCU is vowing to cut its ad load. Shorter and fewer units could be the key to monetizing breaks that last for exactly as long as an OTT consumer finds appropriate.
We may also see a resurgence in brands underwriting entire shows, a return to the original ad-supported media model dating from the days when Pepsodent sponsored the first syndicated national radio programs. This was a sentiment that lasted through the first generation of TV, where the titans of content at CBS and NBC assumed that the consumer wouldn’t tolerate a break in the programming. It wasn’t until later in the 1950s that the commercial break – originally developed for live programs such as sports – took hold as a monetization model for video media in general. Perhaps in the age of ad blocking and free digital content there’s value in returning to the wisdom of that approach.
Deeper along these lines is the promise of dynamic product placement ads, which allow brand dollars to saturate and support new content without threat of interruption. Imagine every billboard in a car chase scene, every airline in an airport scene, every computer at the company being a dynamic unit available for purchase by different buyers along different targeting parameters. The technology is still a few years from its tipping point, but has the potential to fundamentally restructure video advertising. The development of these units – and the corresponding standardizations and disclosure requirements – is something to watch closely over the next few years as OTT positions for brand budgets.
The bottom line is that for a player like Netflix, any ad model would need to represent a significant deviation from known models and be hyperprotective of the consumer experience. But if the OTT titans, with their massive scale and unrivaled data assets, stake a claim on brand advertising budgets for the long term, they could very well redefine the media landscape for decades to come.
Alternatively, if these companies fail to innovate ad models, they will lose their shot at this lucrative revenue stream for the foreseeable future. And while they might remain vital components of the media landscape even without those dollars, they will no doubt be increasingly overshadowed and absorbed by the players that ultimately deliver the hybrid ad model that meets the needs of modern consumers and advertisers.
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