Recent news about initiatives to bring automated and programmatic/data-driven access to TV advertising has brought out the typical buzz-kills, with the not-unexpected bogeyman: programmatic buying combined with the proliferation of IP-connected viewing devices will turn the TV advertising business into a revenue wasteland. Such doomsday predictions are based upon the flawed assumption that the adoption and integration of digital advertising technologies will trigger the same collapse of CPMs seen with online video. The assumption is flawed because it doesn’t take into account the nature and relative scarcity of TV content; YouTube videos and entertainment-grade shows such as Breaking Bad are at opposite ends of both the audience involvement and cost-to-produce spectra.
In and of itself, programmatic buying will not flatline CPMs. TV content is the most engaging, yet the most expensive to produce and largely under the control of its copyright holders. In simple terms, we have huge demand for a scarce resource – from Microeconomics 101, we know that translates to high prices. Online video has the opposite market phenomenon, with an almost limitless supply (48 hours of new content every minute); it’s the gross oversupply that has caused the CPM collapse in OLV, not programmatic technologies. And no TV content owner would be foolish enough to throw their high-value assets into a pool of cat videos. Instead, we believe, using data and automation to buy TV advertising will result in a real win-win for the market. From a programmer/operator perspective, average CPMs and overall revenue will go up as advertisers find value in previously unmeasured audiences. To the advertiser, effective CPM will decrease as audience targeting becomes more explicit and focused.
The advent of place-shifting and time-shifting doesn’t mean the End Times, either. Again, it’s all about the content, irrespective of device used to consume it. Put another way, the eyeballs, not the pipes, determine the value of content. We watch shows, not apps or websites. And the rising cost of that content must be borne somehow. The average household watches TV-grade content for 8 hours a day or roughly 60 programs per week. That works out to $180 per week, or $720 per month (at an iTunes-like price of $3 per program episode), yet most of us think $78 per month is too much to pay for a cable TV subscription. Even if long-tail and back-catalog titles (which are the vast majority of titles available through Netflix online) account for half of that consumption, there’s still a very large disparity between true a la carte costs and a TV subscription. Advertising is what bridges that gap; roughly 50% of a programmer’s revenue comes from advertising. That business model isn’t going to change just because the content isn’t necessarily being delivered via traditional linear-over-RF infrastructure. Programmers and MVPDs are already well on their way in evolving the associated advertising infrastructure, and programmatic access is an essential part of that.
Television has been ad-driven since the very first day of commercial broadcasting; the manner in which ads are bought or the devices upon which TV content is consumed won’t alter the essential aspects of the TV business (at least not overnight, when $72B is involved). Content is still king, and the value of the advertising is inextricably linked to the value of the eyeballs watching that content. To play with Mark Twain’s words, the death of the 30-second spot has been greatly exaggerated. If anything, programmatic access will enhance the value of “traditional” linear advertising by enabling marketers to much more effectively reach specifically targeted audiences, irrespective of time or device. Indeed, smart marketers see programmatic TV ad buying leading to an exciting golden age worthy of the medium’s high quality programming. We’ve built clypd on that basis – a vision shared across the gamut of suppliers (programmers, MVPDs, and consumer electronics device manufacturers) and buyers (agencies, DSPs, and ATDs).
As clypd’s CTO, Joel enjoys not only building technology for the delivery of TV advertising, but loves watching the spots too (no matter what the length)