Earlier this year, DirecTV took a step into the future of TV advertising. Rather than let marketers target only shows and geographic markets, it allowed them to zero in on specific audiences -- down to the individual home.
"The way our technology works, I can literally take a 30-second TV commercial, I can insert it into a commercial pod and I can target that commercial to the household level," said DirecTV Exec VP Paul Guyardo. "We don't serve up the impression until we know the TV is on and the viewer is watching," he said. "The show doesn't matter. It's the audience."
After years of resisting change, the industry is beginning to sell commercials with an emphasis on precise audience targeting, similar to how ads are sold online. The practice, still in early days, can't yet reach every household and has been primarily adopted by TV-service providers. But the tech has finally arrived, and it's poised to play a big role as the industry gets used to it.
Pushed into it
Until recently, the nearly $70 billion TV-ad industry had excelled at warding off tech-fueled disruption. The benefit of unparalleled reach kept dollars flowing into the category. Add in woefully old-school technology and TV seemed nearly impervious to change.
But then things really started to shift. TV audiences have been fragmenting since the advent of cable, but that process is now in overdrive thanks to hundreds of channels, video-on-demand options and devices. At the same time, spending on digital started growing at a pace faster than TV. Now, the TV industry, or at least parts of it, is turning to advanced targeting to help retain its dominance.
"Over the years, billions of dollars have flowed out of television and into the online space because it is more measurable," said Mr. Guyardo. "We believe that this addressable form of advertising is going to bring money back to television."
Advanced TV targeting, while small, is starting to build momentum. In addition to DirecTV, which claims addressable TV sales now account for 10% of its ad business, providers such as Cablevision and Dish Network offer similar capabilities. "It's very small and growing rapidly," said Tad Smith, president of local media at Cablevision.
And then there's Simulmedia, a TV ad network that does show-level targeting based on audience data. The company reaches 116 million homes, up from 15 million two years ago. "We now out-reach any of the three biggest networks, broadcast and cable, on any given day or week," said CEO Dave Morgan.
Bringing advertisers back in the fold
Targeting technology can boost TV's appeal, especially among smaller advertisers with limited budgets. Auto-parts manufacturer K&N, for example, recently returned to TV advertising after a years-long hiatus. Through Simulmedia, K&N placed spots not only on shows similar to "Top Gear" and Nascar broadcasts, which would seem intuitive for its target audience -- males 25 and older who perform their own auto service. But based on Simulmedia's data, it ran commercials during syndicated episodes of "Buffy the Vampire Slayer" and a 4 a.m. airing of "The Rachel Maddow Show."
"This permits us to target television audiences much more succinctly than we had been able to before," said David L. Smith, CEO of Mediasmith, the agency that worked with K&N on the ad buy. "It's a quantum leap vs. the older ways."
No going back
A world where TV ads are bought and sold through ad exchanges and demand-side platforms seems far away. Many large advertisers will continue to prefer buying in big chunks to reach mass audiences. But what's happening today might be laying a foundation for a future with more options.
Todd Gordon, an exec VP at Magna Global, a media arm of Interpublic Group of Cos., said his agency is already buying a small amount of TV in "an exchange-like platform."
The goal, he said, is to expand the pool of available inventory to include more premium ad space. As part of that ambition, Magna Global created a consortium of industry players this August to further programmatic ad buying.
With recent buy-in from big networks such as ESPN, which joined the consortium last month, automation has the chance to play a much bigger part in the TV industry.
"It's an ambitious goal," said ESPN Exec VP Eric Johnson, of the consortium's desire to move the industry toward more automation. Mr. Johnson added that, in his view, technology doesn't allow large national networks to sell their inventory efficiently.
Seth Haberman, the CEO of Visible World, a tech company that works with Cablevision and others to develop these capabilities, said advertisers are already dedicating percentages of their budgets to buys with advanced targeting. He says it's not a question of "if" but "how much" and "how fast."
"There's no going back," he said.