The idiosyncrasies of the TV advertising industry and what needs to happen

tv watching behavior

It has been a long hiatus. A new role at ABI has kept me busy in the past six months. During that time, I wrote a couple of pieces for AdExchanger that took me away from this blog, but I have had an itch to write a new opinion post.

As a digital marketer who is now responsible for a large TV budget, I decided to write about the current state of the TV advertising industry. It’s not surprising that someone with my background would be critical of a medium that has hardly evolved in the past 70 years, but I feel I can provide a different perspective. Besides, there’s little point in me discussing some hot topics of the digital marketing industry. Marc Prichard is already doing a tremendous job at demanding transparency and fair practice in the digital space, and he definitely has more pull than I have. There are also people with the caliber of Scott Galloway and Elizabeth Warren arguing for the need to  break up and regulate “big tech.” They have eloquent and extensive arguments; there’s little I can add there.

I see three idiosyncrasies as clear signs that the TV industry is desperate to reinvent itself to avoid disruption or obsolescence. While not extensive or equally applicable to all the players in the market, these signs serve to make a larger point: 

  • Audiences are traded like crude oil
  • Semantic innovation
  • Fluctuating moral compasses

In this analysis, I don’t want to only point out what’s wrong. I also want to offer some thoughts on how the TV industry could evolve to live a new golden age and truly oppose players like Amazon, Netflix, Facebook, and Google, who are not afraid of short-term losses, sit on piles of cash, will likely spend north of $30 billion in content, and pride themselves of being “category disruptors.” 

Audiences being traded like crude oil

Let’s start with one of the biggest signs that the industry is ripe for disruption: in the last 15 years, the reach of a TV GRP has decreased 67%*, yet prices keep increasing higher than inflation. The TV audience is traded like a scarce resource, not like the commodity it should be. Prices are higher because ratings keep declining year over year. In order to deliver the desired GRPs, they need to use a higher share of the available inventory. This creates scarcity, and, in order to keep revenues flat or increasing, the only option is to increase prices. 

But let’s remember that user attention is not a scarce resource only available for a handful of TV networks. Thanks to mobile phones and ubiquitous connectivity, average media consumption has increased across the board. There’s actually more audience time and attention to be addressed by advertisers—users are just spending less of it on TV. 

Even advertisers buying inventory in the Upfronts are forced to commit to larger bundle buys to secure the desired high-profile inventory, and they are also seeing smaller discounts. 

This exposes two very convenient aspects of the current TV business that need re-thinking in a world where advertisers require more flexibility, budgets are continuously under scrutiny, and audiences are increasingly ubiquitous. First, TV executives are currently able to force advertisers to buy unwanted inventory.  Second, they conclude most of their yearly sales in just a few weeks of work. 

Semantic innovation

TV ratings are measured by a Nielsen household panel and reported as the official source of truth. Broadcasters have been arguing for years that program delivery in out-of-home (OOH) venues like bars, offices, and airports are catalyzing way more eyeballs than what’s reported by the Nielsen household panel, and the ratings should reflect that. 

After years of lobbying, the major TV networks persuaded Nielsen to make OOH ratings standard at the beginning of the 2020-2021 NFL season. This innovative way of reporting on the exact same audience previously available comes with an enticing offer for advertisers: subscribe to counting the OOH ratings one year early (2019-2020 season) and pay a significantly discounted rate for the additional GRPs reported in perpetuity.

While it may be true that ratings could be underreported for OOH consumption for some programming like sports and news, the same can’t be said for ads. It’s hard to believe that people watching the game in a bar will remain glued to the screen during the ad break rather than talking with their friends, running to the bathroom, or ordering some more food and drinks. In a world where every advertiser worries that consumers are leaving the room or pulling out their phone during the ad break in the solitude of their home, the TV networks are trying to persuade them to pay extra for a much less attentive cohort of people.

Rather than finding better ways to integrate the advertising message into the content in order to justify a price increase, they are doing funny math on the same pod format that has barely changed in the past 70 years to keep the revenue coming. It’s nothing but semantic innovation.

Fluctuating moral compass

Concern about consumer privacy and complaints about the higher degree of regulation than digital native companies face surrounds the lack of digitalization of the TV advertising industry. Despite the fact that large companies like Comcast or AT&T should have all the capabilities of providing truly addressable inventory and holistic anonymized consumer tracking, programmatic TV offerings are still extremely limited, and measurement relies on Nielsen panel data rather than third-party audited return-path data.

The reasons for this limited technological sophistication are twofold. First, if they were to truly make all their inventory available for auction at a fair market price, they would likely have a revenue issue (hence the reason why they bundle much of their inventory during the Upfronts as explained before).  Second, although privacy appears to be more morally defensible, a closer analysis reveals it to be nothing more than a convenient excuse. 

The argument is that privacy concerns and regulation don’t allow them to provide access to anonymized 1:1 tracking of content consumption. Yet, Comcast and AT&T own both TV networks and the infrastructure that delivers it (internet or cable). Customers pay an average of $130-170 a month. Consumers can access different TV packages, but they are still served 15 minutes of ads for every hour, and advertisers can still purchase their data for programmatic targeting purposes. If it sounds like a ripoff, it’s probably because it actually is. It’s not dissimilar from what Google or Facebook do (providing entertainment in exchange for advertising), but TV networks  charge users $150 /month for it, their infrastructure is government-subsidized, and consumer data is also re-sold for third-party use (differently from “walled garden” environments that only use data for direct targeting on the platform – Cambridge Analytica aside).

With the amount of “cord-cutters” and “cord-nevers” expected to hit 30% of the US households in 2019, consumers are developing a taste for ad-free, on-demand content.  Increased scrutiny in data usage of digital-native companies may also become a double-edged sword for cable providers. 

It’s time for a change. 

What to do

I believe the only option for the TV advertising industry is to spend meaningful money and effort on true innovation—of technology, content, and culture.

Technical innovation: make as much inventory as possible addressable and measurable. 

This will cause three things: 

  • Large advertisers will likely spend less in the aggregate, but more per premium units and programming. Revenue may fluctuate up or down depending on the player.
  • Small advertisers will access the market and constitute a long-tail of revenue (similar to Google and Facebook).
  • Broad reach will be more expensive, creating pressure to justify every additional dollar in spending and the use of deterministic data for targeting and incrementality. 

Content innovation: modernize the commercial pod and reprioritize content development.

  • If traditional 10,15,30, and 60 seconds TVCs will be brought programmatically, they will be considered equivalent to pre-rolls or mid-rolls. 
    • Advertisers will question why they should be one of 10 advertisers in a linear pod (with the risk of their message of being lost between other advertisers) vs. advertising online at a similar CPM amongst fewer advertisers. 
    • This will also help create a truly holistic approach between digital video and laid-back TV (regardless of the method of delivery) for advertisers.
  • Large advertisers will also vigorously refuse the cookie-cutter approach of sponsorship through the “brought to you by” messaging or the 5-second billboard, demanding seamless brand integration into content. 
    • Networks should look at the current influencer and vlogging trends for inspiration.
    • If you think this would compromise the integrity of the programming, think again. Smaller sports leagues and some TV networks are already integrating brands in their broadcast very elegantly.

Cultural innovation: fuel a genuine desire to  provide customer and consumer value.

  • Networks should give up on locking old content behind paywalls (e.g. NBCU with The Office in 2021, HBO with Friends) but adapt and experiment with new viewing experiences (e.g. Quibi). 
  • This will inevitably cause the prioritization of content development proportional not to current viewers, but demographics desired by the advertisers. Instead of investing in the 17th season of NCIS, invest in content that 18-45-year-olds would like to consume. Advertisers are not salivating over TikTok because it’s cool (well, maybe), but because there’s less desire to target a program with an average viewer age of 65.
  • Holding companies should make clear what personal data they will be reselling when users sign up for internet and provide discounts to those willing to opt-in to share anonymized data for targeting and analytics purposes. As much as rhetoric around privacy would have you think otherwise, take any sane person and offer them more relevant ads (say allergy medication vs. psoriasis medication) while also knocking off $20 a month from their internet bill, and you’ll have a bunch of happy customers more than willing to balance privacy with convenience.

This transformation will cost a great amount of money for the holding companies that will have to be financed through rigorous cost-cutting and a decline in profitability. It will be a long-lasting overhaul that will cause the departure of the current leadership and a radical transformation of the business. It won’t be easy, but it will be absolutely necessary for the survival of the TV advertising industry.

Author: Paolo

Economist by education, marketer by profession, coffee roaster by hobby.