SnapStream Series: The Future of Broadcast Monitoring & Compliance
This is the third blog post of a three-part series on a future of addressable TV ads
As broadcast TV advertising becomes addressable, TV and cable networks will have new opportunities to generate revenue. To prepare for this future, ad sellers at TV and cable networks should:
1) think about delivery mechanisms for commercials, including leveraging ACR/smart TVs
2) consider making different versions of an ad for brands
3) create test opportunities for ad buyers
Earlier in our series, we looked into how Multichannel Video Programming Distributors (MVPDs) and local TV stations should prepare for a future of addressable TV advertisements. TV and cable networks have to get ready for that future too.
James Shears, the Vice President of Advanced Advertising at Extreme Reach, a creative asset management platform that helps ads get to the screens they need to be, has advice on how TV and cable networks can position themselves to take advantage of this future.
Think About Delivery Mechanisms for Commercials
Shears says that TV and cable networks need to think about their delivery mechanisms for commercials. They can run addressable advertisements through the MVPDs and set-top boxes, and they can also use OTT and smart TVs, which rely a lot on Automatic Content Recognition (ACR) data.
Shears says that MVPDs store every ad on the set-top box, which means the ads are pre-cached for play-out. On the other hand, because OTT and ACR/smart TVs leverage IP to deliver ads, the ads get served in a more real-time manner.
TV and cable networks, he adds, already rely on MVPDs to deliver their content in the linear world.
“MVPDs have a lot of power, so they would control the technology and aren’t as incentivized as smaller players to build customized tech,” he says. “The MVPDs also already have the economics worked out within the space, and can drive the business discussions. It’s wrapped up within the carriage agreements of the content on linear TV.”
He explains that by going outside the MVPD route, TV and cable networks may earn more power and could push for more customized technology. And because the economics and business models of the OTT and ACR/smart TV worlds aren’t completely defined yet, “there’s room at the table for more discussion.”
However, Shears recommends that it's probably best for TV and cable networks to use all of those options.
“To have a successful addressable campaign, you need scale, and the broadcaster has to decide the best way to do that," Shears says. “In the current environment, it’s probably prudent to explore all avenues available. From there, the market may help decide on the tech that works best and can scale quickly.”
Segment Inventory at the Appropriate Level, and Consider "Creative Versioning"
Shears estimates that TV and cable networks in the United States have between 13 and 18 minutes of commercial time per hour—which amounts to between $66 billion and $70 billion in ad revenue per year.
Ad sellers at TV and cable networks need to make sure that they’re segmenting their inventory at an appropriate level, given that addressable means “essentially splitting the units” they would typically run.
“Instead of showing, say, JCPenney to the entire country, you might show a portion of the country JCPenney and a portion of the country a Ford ad or a Coca-Cola ad,” Shears says.
He also stresses that it wouldn’t make sense for them to make every single unit addressable “this early on,” though it will eventually. He recommends that ad sellers at TV and cable networks think through their business models, and consider whether or not it would make sense to do what he calls “creative versioning.”
“You sell one spot to Ford, as an example, and so the entire country will see a Ford ad,” he says. “But maybe one viewer sees a sports car ad and another sees a minivan ad. You're still selling the entire spot, but you're creating different versions for brands.”
It’s also important for those ad sellers to identify inventory. Linear TV has a finite amount of inventory—for example, 15 minutes of non-programming time per hour. The broadcaster sets the market price for the commercials that will fill those 15 minutes.
“Addressable in the linear TV space requires a slot to show the commercial to the viewer,” Shears says. “That means, it too has to take part of that 15 minutes. If that is true, it really becomes an economics exercise. If the broadcaster now can’t sell the same amount of inventory as before, how does it manage the yield?”
Shears suggests that the broadcaster looks at the lowest yield it currently has on its books, and replaces it with addressable.
“That’s really a decision for the broadcaster to ensure it can still maintain the same or hopefully more incremental revenue,” he says.
Get Buy-In from Advertisers
Of course, Shears notes that addressable advertising will only be successful if ad sellers at TV and cable networks get buy-in from advertisers. To get that buy-in, they should create test opportunities for ad buyers.
“It would depend on the brand, because HGTV has different advertisers than ESPN or Lifetime," he says. "Ad sellers should identify an opportunity within their endemic advertisers. So if it's HGTV, maybe the advertisers are Home Depot or Lumber Liquidators. They could then create opportunities based around those types of genres.”
Shears says that addressable ads allow advertisers to measure the effectiveness of their campaigns. Discussions between ad sellers and ad buyers need to happen before campaigns start so everyone understands the success metric. Once that is understood, ad sellers can design campaigns appropriately.
“This is not a set it and forget it type of product.”
Update November 27, 2019: A new report from Rethink TV found that addressable TV advertising will grow rapidly in the coming years, increasing from $15.6 billion in total worldwide revenue in 2019 to $85.5 billion by 2025. The report also found that this growth in addressable TV advertising will happen in "all sectors of pay TV and all major geographies" over the next six years.
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