"On TV And Video" is a column exploring opportunities and challenges in advanced TV and video.
Today’s column is written by Randy Cooke, vice president of programmatic TV at SpotX.
Disruption is a norm of the modern world, a predicate of evolution that exists within every industry. Just a century ago, Henry Ford quipped that if he’d asked people what they needed before he built the Model T, they would have said, “Faster horses.”
Today, the media industry is facing its own challenge to think bigger than just faster horses. The moorings of the media business are resetting, and for many execs, the shift toward a “total video” marketplace means each day feels like a Maalox moment.
Disruption, however, is not what the media industry should fear. Instead it should be wary of the potential unintended consequence of disruption: the destabilization of TV economics.
While there is no doubt about the overall health of linear TV, with its enduring monthly reach of more than 90% of the US population, the ways in which linear TV distribution are evolving represent a significant upside for many media owners. As more and more linear TV audiences can be purchased through IP streams, the economic structure of the traditional ad sales model will be amplified by device targeting capabilities and, by extension, the real-time programmatic fulfillment of audience.
Set aside for a moment the promise of addressable TV. After all, “addressability” isn’t a term you hear a lot when discussing digital video, just like you don’t order “wet water” at a restaurant.
Whereas an advertiser in today’s broadcast world may purchase a 30-second ad from a network, valued on reaching the “adult 18-49” portion of the total audience, everyone tuned to that program will see the ad, even if they’re outside the intended audience target. Only one advertiser may own that 30 seconds of ad time.
Inherent within IP distribution is a “horizontal multiplier” of value for media owners, which expands the revenue potential of every 30-second ad. While the media owner can still sell the entire adult 18-49 audience streaming its linear content to a single advertiser, it can expand the total value of that 30-second unit by selling to other advertisers each stream of audience in shouldering demos, such as women 50-54, men 55-64 or teens 12-17. A $50,000 broadcast ad unit could easily be worth $150,000 in IP streams – the sum of the parts is greater than the whole.
In the US, there’s also a “vertical multiplier” of value for programmers created by the spot TV marketplace, which has institutionalized 210 individual valuations of identical content and demography.
An advertiser, for example, could option a broadcast network ad in a specific program for a $20 demo CPM or target the same demo in the same program only in Los Angeles for a $200 CPM. Demographic values vary greatly across Nielsen’s 210 designated market areas (DMAs), with SQAD high-average prime CPMs for adults 18-49 in 1Q topping $1,500 in Glendive, Mont., Nielsen’s smallest DMA.
As programmers own a majority of ad time within linear TV, it’s easy to see how the ability for a network to serve device-targeted ads could yield CPMs equal to (or in excess of) the spot TV marketplace. With roughly 40% of all US TV dollars invested in local markets, the value multipliers of IP distribution give networks the ability to compete for larger shares of TV demand with only a fraction of the total TV audience reachable through IP streams.
If US TV ad spend remains relatively fixed in the $70 billion-$80 billion range over the coming years, the potential for economic destabilization is very real. As such, the industry would be well served to focus less on today’s disruptors and more on how we address a shift in audience that is certain to outpace TV’s current demand curve given today’s linear TV ad loads.