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TV Works on the Web, but TV Advertising Won't

Will TV Everywhere Simply Become an Extension of TV Advertising? Let's Hope Not

By Published on . 6

Thomas Morgan
Thomas Morgan
As the vision of TV Everywhere comes to market, there are significant pressures on both broadcast and cable networks to close the "parity gap" between traditional TV and the emerging distribution channel we call internet television. But does internet TV need to conform to the ad practices and inventory loads of traditional TV? Does TV Everywhere simply become an extension of the ad inventory of traditional linear television? That is a $70 billion question.

Consider the parity gap with prime-time TV. Prime-time TV is sold on a GRP (gross rating points -- the sum of television rating points for each commercial spot within a campaign) basis, and it typically uses Nielsen C3 ratings as the currency. Though there is a wide range of ad loads, assume a rough average of 22 national ads, four affiliate ads and six promos per linear hour. Assuming a $25-$35 CPM, the resulting programmer "revenue per viewer hour" (RPH) of traditional prime-time TV is in the $0.50 to $0.70 RPH range.

Increasing ad loads
Early entries in the internet TV market typically carried ad loads of six units per hour, often with one sponsor having the single voice within a show. Brand recall and engagement for this model have been nothing short of phenomenal, with resulting CPMs basically double those seen in the traditional linear world. But with the lighter load, the resulting RPH of this model has still fallen short.

In a quest to close the parity gap of internet TV, we have seen recent announcements by several networks to both increase loads, and in several cases adopt full C3 inventory support for internet TV. In fact, there is a strong movement in the industry to roll up all forms of on-demand TV and include them in a traditional linear C3 TV buy. In this scenario, networks would encode regular off-air shows with the C3 inventory already in place, and offer them in their TV Everywhere offering for the 72 hours post-broadcast. Get Nielsen to sample the viewership -- and voil´┐Ż! -- instant C3 inclusion and parity is achieved.

The logic here is that scale and ease of buy is more important than developing new online ad functionality that could surpass the premium CPMs that television has enjoyed. Let's review some of the fundamentals of C3 inclusion and address whether this rush to roll-up is really the best solution.

Different value propositions
First, in traditional TV's linear, ad-supported programming, the C3 currency used is typically based on the adult 18-49 demographic. This simply means that advertisers really pay for viewers in the 18-49 year old demographic, and all viewers "on the shoulders" are wasted. Conversely, internet TV is sold as gross impressions, but targeting-based insertion allows the network to segment demos outside the primary demo. Call it "targeted person 2-plus" if you want to put it in TV terms, but it means there is no waste. If internet TV is rolled into C3, the networks are only going to get paid for impressions against the demo. Let's say 60% of the audience are adults 18-49, that means that the nets are throwing away 40% of the impressions.

Second, the value proposition of digital media is interactivity and addressability, both of which are used to optimize targeting and both of which would be precluded by a linear C3 model. If I am an advertiser, I would not look at C3-based online media as internet media, I would look at it as linear TV. Therefore, if I am shifting budget to the internet, that shifted budget will go where I can get interactivity and addressability, and not to linear-based C3 Internet TV. C3-based linear inclusion does nothing to stem the emerging flight to internet-based media nor does it help measure the media accurately when it gets there.

Finally, the gap between TV and online is not as great as people think. Let's compare 1,000 people watching a full prime-time show on TV, and 1,000 people watching the same show online. If roughly 40% of them are outside A18-49, then the C3 model will discard 400 people to start. The remaining 600 view 22 commercials at say a $30 CPM, so about $.66 per viewer X 600 viewers = $3.96 of revenue. Compare this to online: 1,000 people view six commercials at, say, a $40 CPM, so $.24 per viewer X 1,000 viewers = $2.40 of revenue. Hence the parity gap. However, if we upped the ad load to 12 and dropped the CPM to $35 on average for all viewers, online would generate $4.20 of revenue per 1000 viewers, exceeding the $3.96 of TV. Parity achieved and exceeded!

Modest change
Based on this analysis, the need to increase the targeted and addressable ad load for internet TV is pretty clear. Upping the ad load to 10-12 units per hour will require only a modest modification to the current internet TV ad structure. Customer research indicates that a dynamic mini-pod model (two ads per break) is well tolerated by the viewer. And even if the linear C3 roll-up is still required, there are simple ways to allow the viewership outside the A18-49 demo to be dynamically served.

The television industry needs to learn how to do more with less ... eliminate waste, increase value through targetability and engage the viewer with ad functionality that draws the viewer into the message.

This raises the final issue: ad formats. This is not just about targeting 30-second C3 based spots; it is about providing the advertiser with the ability to invest in TV-based-targeted and engagement-based campaigns and leverage that investment across networks and platforms. During a recent conversation with a CTO of an ad services company that manages ad insertion on full episodes for a group of TV networks, I asked what percentage of the creative that they managed was common. Less than 10% was the response, but what he really meant to say was 0%. There is excellent work going on in the industry at the websites of the cable and broadcast nets, media agency projects like the Pools Project at VivaKi or the Interpublic Lab, and even sites like Hulu and Xfinity/Fancast. But if the internet TV industry is going to counter this pressure for C3 roll-up, then it must start providing dynamic scale (more, better-targeted ads to more people) to the advertisers. After all, this is still television!

Parity is now in sight, but hopefully it won't just come from simply moving linear C3 inventory over from TV. Internet TV has the potential to be the most powerful ad-supported medium ever created if we learn to leverage the strengths of both television and the internet. Give it a chance.

ABOUT THE AUTHOR
Thomas Morgan, the CEO of MediaD.tv, is a 27-year digital media veteran with a particular focus on the development of new advertising models for on-demand and internet-based television.
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