Editor’s note: As recent earnings reports show quite clearly, the TV advertising model is at risk and needs to evolve, writes Seth Ulinski, senior analyst for advertising technology, at Technology Business Research.

HAMPTON, N.H. – The TV advertising model is at risk and needs to evolve

In the first week of August a handful of media conglomerates, including Viacom, Disney and Discovery Communications, reported disappointing earnings, citing soft TV advertising revenue due to decreased viewership among millennials and young adults.

A total of seven companies lost a total of over $35 billion of their market cap, per the Wall Street Journal.

Transforming business models is no easy task and requires due diligence, resource allocation and executive support. However, the print industry serves as a warning that digital is moving at full speed and can wreak havoc on even the most established business models. In 2010 print ad industry revenues topped $60 billion; in 2015 it is anticipated to be roughly $15 billion.

If the TV industry was not aware of how disruptive digital platforms can be, it is now.

Industry stakeholders develop multifaceted digital strategies

Most TV industry stakeholders are taking note and/or making moves to address changes in consumer viewing behavior, evident in statements made by executives during recent earnings calls.

  • “Linear-interrupted advertising is clearly not the only or best way to do it,” said 21st Century Fox CEO James Murdoch of monetizing content.
  • During Disney’s 3Q15 earnings call Chairman and CEO Bob Iger stated the company’s efforts around digital would include “more consumption research” and that “demand is clearly there.”
  • Sumner M. Redstone, executive chairman of Viacom, said, “[The company] is meeting the challenges of a rapidly changing media landscape by creating exciting, unique content that connects with audiences on all platforms.”
  • President and CEO Philippe Dauman added, “Our media networks are quickly bringing innovative, data-based advertising products to market.”

No silver bullets

Media conglomerates’ digital strategies will evolve to be multifaceted, and the companies will leverage distribution alliances and advertising technology (ad tech) platforms to reaccelerate revenue growth.

TBR believes video content monetization strategies will need to take multiple paths, as distribution is taking shape and delivery channels remain fragmented. Content delivery avenues include digital properties (e.g., YouTube, Hulu and Netflix) as well as network and telecom companies (e.g., Verizon, AT&T).

TBR believes how much of the value chain network providers pursue will have an interesting, and possibly revolutionary, impact on the industry. Verizon seems to be comfortable holding onto AOL’s content for the short term, but TBR believes the new Verizon-AOL entity will focus on a one-two combination of connectivity and delivery in the long term, adding value by enabling marketers to leverage Data as a Service for video ad campaigns.

Although tremendous business opportunities can be created between Verizon’s mobile subscriber base and AOL’s ad platforms, pairing anonymous consumer data (e.g., cookies, device IDs) with personally identifiable information (e.g., cellphone numbers) without proper notice and choice could be disastrous.

A variety of ad tech companies are creating infrastructure that integrates advertiser demand and media supply while enabling audience targeting. Companies such as AudienceXpress (owned by Visible World), Clypd, Videology and TubeMogul lead the charge on this front.

There are no silver bullets for media stakeholders given the various means by which consumers are watching video content.

Facebook is well-positioned as a distribution partner, claiming it captures roughly 25% of time spent on the Internet. However, Facebook and peer Google are increasingly viewed as frenemies by many in the advertising and publishing industries due to their dominant positions.

Cable operators are exploring mergers with peers while investing in ad tech as consumers switch from set-top boxes to over-the-top technology (e.g., Roku) and other Internet-based channels. In 2014 Comcast acquired video ad platform Freewheel for $320 million, and recently, it purchased Visible World for enhanced audience targeting via set-top boxes.

The dynamics of the digital media industry are making it challenging for the entrenched TV marketplace to transition swiftly and maintain previous business performance. Even if initiatives are in full swing, ad revenues and executive commentary indicate acceleration is needed. Otherwise, we anticipate soft ad revenues and ongoing dips in key audience viewership in the coming quarters.

TBR outlook

Incumbents such as Viacom, Disney and Discovery Communications need to balance taking action with learning implications of new business models, such as whether the licensing model of Netflix or Amazon can trump legacy TV’s ad-supported model or if ad insertion through Hulu or other on-demand intermediaries will suffice.

The pairing of Verizon’s 110 million mobile subscribers with AOL’s mobile and video ad tech platforms creates another avenue to monetize on-demand video content. In the short term, TBR anticipates media companies will continue to experience ad revenue weakness and viewership dips with millennials as new business models are explored.

While linear TV ad revenues will continue to decline, new revenue streams will arise. The nascent programmatic TV ad market is being stewarded by initiatives such as the Programmatic TV Standards Group, which includes ad tech vendors, as well as global TV ad buying agencies (e.g., Starcom MediaVest). Marketer investments in Data as a Service represent a promising opportunity for media companies that attract and engage with consumers; first-party audience segments can be monetized through data marketplaces (currently done in online advertising as well as direct mail).

As computer-generated imagery continues to evolve, product placement will represent another ad revenue stream to offset the interrupted TV ad model. It will take time and resources for the linear TV ad business to transition, but consumer appetite for on-demand and mobile platforms is accelerating, and advertising spend will follow.


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