Consumers simply have far more channels than they did before, and marketers must rely on those channels to drive different behaviors. As such, TV advertising spend has come under scrutiny by marketers wanting to understand its value relative to other channels. They want to determine the right spend per channel and more accurately measure ROI, with the ultimate goal of creating a more holistic customer experience.
The new economics of TV advertising.
For decades, billions of dollars in TV advertising was sold during the upfronts — a futures market where TV advertising is purchased during the spring preceding a new show or TV season's air date. Traditionally during the upfronts, TV advertisers and their agencies buy media based on Nielsen audience guarantees and haggle over the gap between historical numbers and the estimated future audience size; an entire year's worth of TV commercials would be planned and purchased based on that single Nielsen metric. For the most part, TV advertising is still bought in this manner — but times are changing.
With addressable TV growing more than 20 percent per year, according to eMarketer, advertisers will need to adapt their TV strategies to how technology is changing consumer TV viewing habits.
How Cross-Screen Viewing Upends the Upfronts
It's no secret that people watch TV a lot differently now than in the past. They binge on high-quality programming across devices in and out of the home. Young adults especially prefer to watch TV through streaming services. In fact, 61 percent of people ages 18 to 29 primarily watch TV through Netflix, HBO Go, and other streaming platforms, according to the Pew Research Center. eMarketer found that, across generations, people spend 78.4 percent of their TV viewing time watching traditional television and 21.6 percent watching digital video.
The TV industry responded to this enthusiasm for viewing TV anytime and anywhere by creating a variety of programming that premieres throughout the year. Many of today's most talked about shows, from Game of Thrones to Queer Eye, do not premiere in the fall or run for 20-odd episodes per season.
These trends upend the upfronts model of selling TV advertising because the goal is no longer to just sell primetime inventory at a premium. It's now also about extending the reach of a given program across screens to capture those eyeballs that can no longer be accurately accounted for in linear TV viewership or corresponding ratings points.
Networks and programmers are part of much larger content distribution verticals. While they still sell commercial breaks delivered during NBC's drama This Is Us or ABC's sitcom Blackish on linear television, as examples, they now bundle spots in those breaks with advertising delivered to someone watching the same programs on the networks' mobile apps.
Given this development, it's easy to see why the old model of transacting on TV media doesn't cut it. Advertisers need more granular metrics, rather than a modeled Nielsen guarantee. This need illustrates the inflection point between TV and digital. Digital has always had granular, real-time metrics that could be applied to media for measurement and targeting. TV is now at the point where data-based ad buys can be made and targeted to the right audience. New capabilities in TV measurement bring about a fresh way to look at the economics of TV.
The Dawn of People-Based TV Advertising
Advertisers now have the ability to use first-party data to make more informed TV ad buys and more accurately measure TV's effectiveness. This largely depends on how savvy their agencies are, but the best of them can take digital segments created from CRM data, use an identity resolution provider to anonymously match them with TV viewership and exposure data, and generate data-driven linear index reporting.
With this information, advertisers can reach a specific, custom audience on linear TV and purchase inventory based on what that audience is watching. This can lead them to buy dayparts and programming that they would not have previously considered or even known were lucrative. For example, a shaving brand may have previously only bought Monday Night Football to target men ages 18 to 49. By using identity resolution to sharpen its segments for targeting on TV, this company would not only have the data to reach the same audience across screens for Monday Night Football but also for targeting them when they're watching Freakish on Hulu.
TV Moves Down the Funnel
For decades, TV was viewed as a pure brand-awareness vehicle for reaching mass audiences. This was in part because TV measurement was relegated to brand-lift studies performed after a campaign aired, and also because advertisers could only measure TV's efficacy long after a campaign concluded by using modeled panel data. Advertisers now have the ability to measure TV's effect on down-funnel actions, such as purchase consideration, in-store visits, or actual buying. TV can be seen and measured as a vehicle for delivering tangible business results.
To do this, advertisers take the same first-party data they used for targeting and apply it to TV measurement in a privacy-conscious manner. The full customer journey comes into focus when brands source other data streams to feed into a matching partner and measurement platform, such as purchase data from a CRM or a credit card provider, location data from companies such as Euclid or Cuebiq, and viewership or exposure data from companies such as Inscape or iSpot.tv. With this data, an auto dealership, for example, could see that an anonymized person in its database was exposed to six Subaru ads on TV and bought a Subaru Forester three months later.
The ability to glean this level of insight is a game-changer in the economics of TV advertising. Programmers can more accurately price all of their inventory relative to its value and advertisers can more accurately invest and track their budgets.
Paying Top Dollar Can Yield Better Results
Advanced TV, which encompasses addressable TV, data-driven linear, streaming services, and digital video, enables advertisers to reach specific audiences, either on a one-to-one household level or as a propensity target segment. There is a premium tied to that reach. If a brand pays a $25 cost per thousand (CPM) nationally for a Nielsen-based buy, they might well pay a $100 eCPM — or effective CPM — for an addressable TV campaign. Advertisers who test advanced TV strategies and measure them on the back end often find this higher cost to be well worth it. With the right data, brands should be reaching more of the right people versus a larger audience with a lower density of in-target viewers.
These shifts in the way TV media is bought, delivered, and measured brings TV and digital teams together and changes marketplace dynamics. If media teams, regardless of channel, are aligned in reaching granular audiences, they're more able to understand the business value of the media they're buying.
If a brand has a digital-minded person controlling cross-screen investment strategy, they're going to think differently about the planning and economics of media buying than a traditional TV advertising buyer. The digital-minded advertiser is going to be thinking about eCPMs and deduplicating reach across screens while learning that the pricing model for TV is vastly different from digital's, and that there are concrete business reasons for that difference. The economics of making TV and digital better together is what the marketing industry is seeing now.
Achieving TV-Digital Equilibrium
The way digital and TV teams are coming together isn't something only big brands are thinking about — advanced TV can also make sense for small- and medium-sized businesses.
Any brand that has its own CRM can use an identity resolution provider to match this first-party data to the data of a multichannel video programming distributor (e.g., Comcast, AT&T-DirecTV, Dish Network) to make local or regional addressable buys. A world in which neighbors or commuters watch the same show but see different ads is coming into focus.
The core of the new economics of TV advertising is not getting the lowest possible media cost — it's learning how to balance media spend across channels to get the right audience at the right time. Advertisers who achieve this equilibrium will have the numbers to prove that they're not actually paying a premium on any channel but rather the right amount to drive their businesses forward.
Jessica Hindlian is the head of TV platforms at LiveRamp. You can email her at email@example.com.