The strategic choice for television publishers has arrived. It is time to choose.
By: Mark Green
The strategic choice for television is to either compete with digital media or become digital. On the consumer side, digital delivers video on any device at any time. On the business side, digital provides addressable targeting, real-time buying, and response tracking of outcomes.
Traditional television still retains some advantages over digital. Traditional television provides fast reach with complete videos on full screens without fraud.
If television publishers view TV as Total Television instead of just linear, they can win. As this viewpoint argues, television publishers with direct-to-consumer distribution have the winning hand if they move fast.
Everyone knows that change is here.
As with any innovation, digital does not need parity with television to win. It simply needs to get enough right to gain traction, and then incrementally improve its features to compete. This may include solving for television’s advantages or simply ignoring them. The marketplace will judge which features matter with ad dollars as features improve.
Over past few years, digital has been tackling accumulating reach for video ads, reporting screen-size delivered, reporting consecutive video seconds delivered, and accounting for fraud. Digital is now working on accounting and filtering for context. Enabling brand safety is one aspect of this. Synchronizing ad messages with content for impact is another aspect. Digital is a young and dynamic medium that is evolving fast, adding new features every year.
How to transform?
Current television publishers have three major revenue sources: ad dollars, program licensing and retransmission fees. Their business model is business-to-business, selling bulk audiences. Now that digital has given consumers the power to pick and choose, the value of bulk communications is decreasing while the value of individual communications is increasing.
Television publishers need to pivot their business model to wean themselves off of the declining parts of the business and invest in the areas of growth. The simplest strategic adjustment is to change revenue and profit calculations from monetizing programs to monetizing individuals. This will drive decisions to maximize investments in the growth opportunities of digital and minimize investments in the declining businesses of bulk audiences.
Analogous direct-to-consumer businesses point to opportunities. Netflix keeps it simple: revenue and profit per subscriber. Ad dollars, coop programs, and merchandising for programs with followings could be additional revenue streams-per-subscriber for television publishers. This can apply to all content, including movies and games. For companies like Disney, the subscriber framework can extend into stores and theme parks. Disney invented this construct in the 1950s with the Mickey Mouse Club, and then went on to extend their bulk audience products (movies) into theme parks and merchandise. So a hard Direct-to-Consumer pivot can be expected to happen at Disney first. The question for the other television publishers is. Can they make the pivot too? And after transforming their US businesses, will television publishers have the vision to go beyond the US by monetizing international subscribers. Digital companies think globally. After getting organized in the US, Netflix is now going international fast.
Leapfrogging is required.
Television publishers are moving too slowly.
The move to addressable is slow because the cable and satellite companies control the majority of the traditional infrastructure and have not viewed upgrading as critical to their business. Cable and satellite companies upgrade to deliver video on demand services where profitable. However since not all homes are profitable, this build out has gone slowly over the past decade. As of last September, 50 out of 126 million US homes (40%) had addressable infrastructure. Addressable ads have been an afterthought.
Meanwhile, 89% of American adults use the internet. The opportunity to communicate directly is wide open. Inventions to fill this void are pouring in. They cover infrastructure (Smart TVs, Roku / Apple TV-type boxes, and enabler apps) and content (Netflix, Hulu, Amazon Prime, and ESPN+). Native digital content like YouTube, Twitter video, and now Facebook video are also circling with appetites for subscriber ad dollars. All these inventions are accelerating the movement from linear to digital television.
Adults 65+ with the lower internet usage at 68% has the highest concentration of linear television viewing. The next lowest age group are adults 50 to 64 with 88% internet usage. These two statistics show that even lagging adopters are moving, suggesting change will keep accelerating.
Once television publishers start selling and communicating directly with their consumers, they can solve derivative issues like ad loads with individualized algorithms to optimize consumer revenues, balancing the value of ads with subscriptions and making this a consumer choice.
Expect measurements to change too.
As digital video solves for viewability with second-by-second tracking of the ads exposure with screen size and fraud accounted for, they will increasingly create pressure for a new second-by-second opportunity to see metric for all video, including television.
This introduces challenges for traditional measurement schemes. Reporting individual seconds will require larger measurement panels. While averages work from smaller samples, individual seconds do not. Since the panel sizes necessary for individual seconds will not be affordable even when limiting the reports to demographics, hybrid techniques of census tuning panels with calibrating persons viewing panels to predict who is tuning will be required. However this solution may soon become less about delivery and more about share benchmarking if television publishers move to the ATSC 3.0 standard and orient all their delivery to a subscriber based system. This pivot would give television publishers second-by-second return path data on all viewing from all their subscribers. Measurement opportunities would then move to third party audit systems and second-by-second brand mentions, brand images, and context tracking, both in programs and ads for effective attributions.
At some point the question might also be asked: are consumers actually looking at the television every second? This applies to content and ads. The growing pervasiveness of cameras in devices suggests that this could be solved with calibrating panels also and applied to the television publishers subscriber return path data. Given sensitivities to privacy, it is unlikely that all consumers will allow themselves to be tracked by camera in the near future, hence the need for that calibrating panel.
There are two narratives for television publishers.