On Friday, equity analyst Dan Salmon and his team at BMO Capital Markets in New York hosted a lunch panel examining the fast-emerging trend of programmatic TV advertising with Matt Bayer (VP of Advanced TV at Magna Global, Interpublic Group); Dave Morgan (CEO and Founder of Simulmedia); and Chris Smith (VP of Emerging Media, Turn). Here is an excerpt of his summary to clients:
Sizing the Programmatic TV and Video Market
The panel agreed that if we look out five years, converged U.S. TV + online video ad spending will be ~$100 billion [all figures are US$] and around one-third to one-half of that will be transacted programmatically. This roughly equates to $80 [billion plus] of TV advertising and $15-20 billion of online video advertising.
While a figure for programmatic television wasn’t specifically given, it was seen as being less than 1% today, but we believe it could begin to reach 10-20% of all inventory in five years.
This should be driven by dynamic ad insertion (DAI) into video-on-demand (VOD) and the continued application of programmatic tools to multi-channel video distributors (MVPDs) allocated ad inventory (i.e., cable companies selling their local avails this way and DBS companies applying more set-top box level targeting).
In this circumstance, the group was using a broad definition of programmatic, meaning basic automation and data-driven decision-making.
In the television marketplace, there is essentially no inventory being traded in a real-time bidding (RTB), open-auction style manner. Coming on the heels of Viacom’s earnings call last Thursday, the concept of non-Nielsen advertising was discussed and programmatic is a key part of this.
Be it digital/TV Everywhere app ad inventory that has already seen programmatic applied to it, or growing VOD libraries being monetized through DAI, programmatic buying methods are lurking in and around many of the small, but growing pools of non-Nielsen advertising.
Be it in places like VOD or simply audiences that are too small to be measured, Simulmedia estimated that around 15% of TV advertising is not measured by Nielsen today.
Impact to TV Ad Sellers: Brings More SMBs, Revalues Ad Units
Turn believes that programmatic can bring new advertisers to TV, namely small ones that have started in digital and may only have $5,000-30,000 to spend per campaign. Similar to how cable made television accessible to a wider group of advertisers, small agencies and marketers that have been building presences in online video will be more likely to mix in television as the systems for buying both increasingly look the same.
The panel believed that programmatic will bring more efficiency to the TV market and narrow the distribution of CPMs. As more data and targeting tools are brought to television inventory, many cheaper units could see increased demand, and naturally pull it away from higher-priced, generally large audience ad units.
The overall changes to CPMs from programmatic (all things being equal) should not be material, as it is not related to the basic supply-demand balance (other factors, like online video/OTT/VOD/etc. supply growth and transacting more linear inventory as C7 proliferates, are more important to overall CPMs).
Finally, it was noted by Turn that the onset of programmatic buying will inevitably raise questions about channel conflict and require ad sales forces to continue to learn how to optimize (rather than cannibalize) their clients spending.
This, among other reasons, is why incumbent TV content and network companies have been accused of moving slowly into programmatic. But moves from ABC and NBC to better connect to programmatic buying tools (initially in digital, but increasing in TV marketplaces) indicate that views are evolving.
Turn noted that it hosted a webinar on the topic a few weeks ago and had more than 2,000 attendees, most of whom were TV executives getting up to speed. Over the past six to nine months, the focus on programmatic TV advertising technology has grown considerably among major media companies.
Impact to Agencies: More Focus on Planning and Business Outcomes
Relevant to both agencies and TV companies, programmatic is beginning to be part of the conversation at Upfronts. For programmatic’s impact to grow, the group agreed that advertisers (and especially their procurement officers), will need to put less focus on simply driving down the base CPMs, and focus more on effective CPMs as programmatic helps them dial in more directly on their target audiences, and remove wasted eyeballs. But overall, programmatic or addressable TV advertising is definitely being considered earlier in the planning cycle and not simply being used to optimize scatter budgets anymore.
Programmatic helps agencies move conversations up to the CEO and CFO level more often by focusing on business outcomes.
The group agreed that TV buying isnt going to move away from a starting point that begins with demographics (i.e., gender, age) any time soon. However, programmatic allows TV advertisers to layer on key performance indicators (KPIs) that give better visibility into how spending drives sales by connecting audience data profiles with data sets from companies like Nielsen, Datalogix, etc. to match against purchase behaviour.
MAGNA noted that all of this requires more assistance from ad technology companies, which were viewed as positive for its planning and buying capabilities (no fear of clients in-housing these capabilities was expressed, but we didnt exactly pursue the subject).
Programmatic shifts more emphasis to planning within media agencies.
With programmatic being applied to ad buying in many of the pools of fragmented viewership, its application is important for the planning cross-screen campaigns, particularly as it is applied to upfront/futures/reserved transactions more frequently.
It also allows digital agencies that traditionally might not have worked in TV to begin to widen their offerings. For example, Simulmedia noted it handled the TV buying for AdWeeks 2014 Campaign of the Year, which was executed by a traditionally digital agency (Publicis DigitasLBi) for Motorola.
Impact to Measurement: NLSN Primacy Remains, but New Options Too
Nielsen age and demo ratings will remain the primary currency for TV and the starting KPI, but programmatic will layer on business outcome-oriented metrics. This gives players like Rentrak a good angle for further penetration of planning and buying; TiVo was highlighted as a possible player now that it has acquired TRA. comScore was not seen as a major player in television, but is building a bigger online video presence.
Finally, the panel agreed that advertisers/agencies and media owners will be able to apply their first-party data more as programmatic expands.
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