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TV is Finally Embracing Digital Ad Technologies

The State of Addressable, Programmatic and Audience-Based Advertising

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Digital ad tech is finally making its way into the TV ad market after decades of talk about making TV ads more personal, more automated and smarter. Today, addressable ads on TV are a reality at Cablevision, Dish and DirecTV. Programmatic TV advertising as a long-term strategy is being evaluated by all of the major TV media owners and media agency TV buyers. And audience-based TV ad buying, while nascent, is now being tested by virtually every TV media owner and TV ad buyer.

What's causing the TV industry to finally move to new ways of filling the ad pods tied to their shows? Three reasons: fragmentation, accountability and digital envy. First, audience fragmentation on TV is now quite severe. Nielsen data show that 65% of U.S. TV viewing is now on shows with a rating of under 0.5. Buyers and sellers need techniques to "re-aggregate" those fragmented audiences.

Second, thanks to Wall Street and big data, ad spend is under the accountability microscope at every major consumer marketer, making ROI-based measurements and the elimination of waste in both media and in the media-buying process very high priorities.

And third, now that digital is part of every marketer's communication mix, an appetite has been created for digital-like measurement, optimization and processes in TV ads as well, where the bulk of ad spend still goes for many brands.

What are these new technologies? Aren't addressability, programmatic and audience-based just three different ways of saying the same thing? No. While each share a certain provenance in terms of using data to make ad placement decisions, they are quite different and are likely to have quite separate paths, timeframes and impacts on the TV ad industry.

Addressable advertising is about delivering a unique ad creative or promotion to individual households watching the same show at the same time. Programmatic advertising automates media buying, using machines to talk to machines to buy, sell and process pre-set orders rather than have people talk to people for the same outcome. Audience-based advertising is about targeting ads to people, not programs -- using data to determine the best spots to buy according to who the people are or what they do, rather than what, when or where they're watching a piece of content. Here is the current state of play for each:

Addressable: While tests have been run for years at multichannel providers, only Cablevision, DirecTV and Dish have significant true addressability in the market today. Enabling addressability in TV for most multichannel operators requires significant technology investments and the sacrifice of some channel capacity. In total, there are probably 10-12 million U.S. homes enabled for addressable TV ads today, with that number expected to grow to 20 million in 2015 and possibly 40 million in 2016.

Programmatic: Since the vast majority of the linear TV ad world has neither dynamic ad servers nor automated inventory yield management systems (known in the digital world as sell-side platforms), programmatic TV advertising today is really a future concept, with some tests being performed among some multichannel operators of workflow automation technologies, like online buying interfaces, that wrap the core process in a digital shell.

Audience-based: With the emergence of massive integrated sets of TV set-top box viewing data (topping 50 million viewers), and purchase data from companies like WPP's Kantar andTiVo/TRA, it's now possible to see exactly how each and every TV ad campaign did in reaching its target audiences and, in many cases, what the consumer behaviors were before and after the ads were viewed. While TV buyers and sellers are still quite loath to abandon the day-part, GRP and demographic practices they have grown accustomed to, virtually all are testing some audience-based buying and selling techniques today.

Here's how this might this play out in the market:

Change won't happen overnight; marketers will ask for it, but sellers will control it. Demand outstrips supply for TV ads, giving media owners a lot of control. So they naturally want to take their time adjusting products, processes and business models to the digital pressures. But as marketers demand to learn exactly how each and every ad spot is performing for them -- which they are just beginning to find out -- they will start pushing for that change to happen faster or sharpen their pencils for where they will place their next round of ads.

Addressable, programmatic and audience-based will emerge on different timetables. The three are not tied at the hip. They solve different problems for different people. They require very different infrastructure investments and demand different changes to decades-old buying and selling processes. My personal belief is that audience-based TV ads will achieve real scale (meaning 10-15% of the TV ad market) much faster (as soon as 2015-16) than addressable and programmatic (2020), since each requires digital-like ad serving and inventory management.

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