Fragmentation, Data, and the Future of TV Advertising
Excerpt from ANA Magazine story:
When the characters Marty McFly and Doc Brown set off for the future in Back to the Future Part 2 it was October 1985 and the most popular program on television was NBC's The Cosby Show, with a rating of just under 34. Had the two time travelers flicked on the TV at their destination 30 years in their future, they would have found 2015's most popular show, The Big Bang Theory on CBS, had a rating of only seven.
Old news to many of us is the precipitous decline in primetime ratings over the past three decades. New news, perhaps, is that this does not imply that viewers have abandoned TV. To the contrary, TV viewership remains rock solid, with the average adult logging 4.5 hours of live TV per week, down only 1 percent year-over-year, according to the "Q1 2016 Nielsen Total Audience Report." In fact, declines in ratings have been largely confined to the top-rated shows. What has unquestionably changed, however, is the underlying dynamics of TV viewing. There is simply much more to watch on TV than ever before. In talking to the New York Times about how coverage of the Olympics has changed over the years, Brian Roberts, CEO at Comcast NBCUniversal, made this point vividly: "Twenty years ago, there was something like 170 hours of live content on one channel. Now we'll have 6,800 hours on 11 channels, and up to 41 live streams. So that's effectively 52 channels with 6,800 hours versus one channel with 170 hours."
Think about it: There was only one TV network with one channel broadcasting the Olympics 20 years ago; this year there was still one network but with 11 channels. Between then and now there's been a blossoming of television channels and offerings that have dynamically changed traditional TV viewing habits, but marketers often overlook the fragmentation that has occurred within the walled garden of linear TV. Why? Because at the same time TV was expanding, digital media had burst onto the scene — first through PCs and then smartphones — diverting our time and attention, and fragmenting viewership still further.
There was, to say the least, an irrational exuberance for the digital investment before its contribution to sales and business outcomes could be quantitatively assessed.
Lured by the presence of young audiences, the innovative creative opportunities, and the promise of more precise measurement, America's top advertisers moved money into digital media, slowly at first, and then in a torrent. There was, to say the least, an irrational exuberance for the digital investment before its contribution to sales and business outcomes could be quantitatively assessed. And in that fervor of over-investment, digital advertising — especially for mobile — grew to become saturated. Not enough audience and too much demand had sent prices upward, diminishing the return on ad spend. Now, the tables have turned.
On August 9, 2016 the Wall Street Journal reported that P&G is scaling back its investment on Facebook. As Marc Pritchard, the global marketing and brand building officer at P&G, told the paper, "We targeted too much, and we went too narrow, and now we're looking at: What is the best way to get the most reach but also the right precision?"
The fundamental issue is reach. Brands simply cannot reach enough people fast enough using digital media to drive the volume of sales that consumer brands need in order to grow. As Rich Lehrfeld, SVP of global brand marketing and communications at American Express recently remarked to Ad Age, "When we run a heavy TV schedule, we see a lift in sales and product awareness. We need to run two weeks of digital to get the reach of one day of broadcast."
The TV Bounceback By all indications, America's top advertisers have woken up and realized that they have probably been under-investing in TV over the past few years. According to a recent analysis by Morgan Stanley, the top 100 marketers spent 1 percent more on TV advertising in the first quarter of 2016 compared to the same quarter last year. That compares to a 2 percent decline in their combined TV ad spend for all of last year.
And for those who have wisely shifted money back to TV, the results are impressive. In June 2016, Standard Media Index (SMI) and Bill Harvey Consulting released an Advertising Research Foundation peer-reviewed study of the relationship between media spend and sales among 29 of the top 100 advertisers. Their results showed a strong correlation between increased TV spending and increased sales. Specifically, advertisers with the fastest-growing sales in the study have been increasing TV spend an average of 25.8 percent since 2014, and their sales grew 14.6 percent over that period. The SMI study also showed that advertisers in the CPG category who increased their TV ad spend saw a return of $4.68 for each dollar added back to TV.
Digital media simply does not have the capacity to reach enough people fast enough to satisfy the needs of most mass marketers.
Conversely, a March 2016 study by TiVo Research and 84.51º, a customer engagement consultancy, found that when 15 random CPG brands lowered TV spend, 11 saw sales decline. For every dollar removed from TV ad spend, those 11 brands suffered $3 in lost sales, the study found.
The verdict is in. Digital media simply does not have the capacity to reach enough people fast enough to satisfy the needs of most mass marketers, and that's why there's been a return to television advertising. But the TV bounceback will be short-lived if marketers do not acknowledge that fragmentation within the linear TV ecosystem requires a reappraisal of how they allocate their TV budget.
Recall that in 1996 the Olympics was broadcast on a single linear channel. This year it was broadcast on 11 channels. The dramatic change in TV viewing dynamics is fueled by other factors, too: The number of households with three or more TVs has nearly tripled since 1985, according to Nielsen; in the U.S., more people work from home than have in past decades, according to U.S. Bureau of Labor Statistics, and thus have more occasions to watch in dayparts other than prime time; and, of course, there are many more channels to watch, meaning audiences are spread like peanut butter across hundreds of networks and thousands of shows. Today, 65 percent of TV viewing takes place on shows that have a rating of 0.5 or less. There are 156 networks measured by Nielsen and an astonishing 133 so-called "dark networks" that aren't measured at all.
So, what's the right way to think about allocating TV budget amid all this fragmentation? The key for marketers is to adopt an audience strategy on television.
Audience targeting on digital has become axiomatic. When advertisers invest in digital, they recognize that context matters, but audiences matter even more, so digital planning focuses on maximizing reach against the target audience and continuously optimizing based on observed results.
TV investment isn't quite the same. Advertisers are more focused on containing costs than they are on reach and results. Taking the digital approach to television, and targeting audiences rather than buying context is a relatively new idea. Advertisers still rely on contextual buying and negotiating for a lower cost per point. It's telling that even though there are 289 networks, the most advanced media plans today use 25 to 50 networks, and some use even fewer. Reach becomes the victim of this old fashioned approach.
How best, then, to maximize reach in the fragmented landscape of linear television?
Optimizing Reach The gross rating point (GRP) still stands as both the currency for transacting TV buys and the measure of delivery, but so much has changed. The product of reach times frequency, GRP is a simple equation. What is not so simple is to understand how audience fragmentation has affected the GRP. To illustrate its effect, assume that "rating" is equivalent to "reach," that we are targeting one show, on one network, and that the audience watches that show from beginning to end. Suppose that an advertiser was seeking 100 GRPs. They could buy a spot in a show with a rating of 10 and reach each of its viewers 10 times (frequency of 10). But in the age of fragmentation few shows have a 10 rating. To get 100 GRPs in a show with a five rating, they'd have to deliver a frequency of 20. When the reach of the spot goes down to two, the frequency is a whopping 50 for those same 100 GRPs.
Granted, the assumptions in this calculation are fantastical, but they are similar to the assumptions marketers make when conflating reach goals with GRP goals. TV planning methodologies based primarily on delivering GRPs will all suffer from this problem: They'll deliver too much frequency at the expense of reach. And less reach means fewer customers, plain and simple.
The key for TV advertisers today is to maximize the reach to a target and minimize unwanted frequency. This requires new and better planning tools — tools that can take advantage of predictive analytics to find where audiences will be in the future, not just where they've been in the past. Big data holds the key. With accessibility to set-top boxes, second-by-second viewing patterns can be analyzed across millions of homes. Observed behaviors can feed machine learning models to predict where viewers will be watching with greater precision than ever before. These predictions can range across all networks, measured and unmeasured.
The key for TV advertisers today is to maximize the reach to a target and minimize unwanted frequency. This requires new and better planning tools — tools that can take advantage of predictive analytics to find where audiences will be in the future, not just where they've been in the past.
TV does a variety of jobs for a marketer. One of the most important jobs is to reach as many prospective buyers of the marketer's product or service as possible. More reach equals more customers.
Audience targeting on linear TV is a strategy designed for the fragmented media ecosystem of today. It's a complement to contextual buying, designed to optimize the reach of the total media plan. One doesn't need a time-traveling DeLorean to know the past is not where we need to go for answers. All we need are data, software, and science to bring TV advertising into its future.