January 19, 2011 – With post-recession advertising surging in the TV and online sectors alike, Madison Avenue is keener than ever to apply next-gen strategies to generate higher ROI on long-form programming. But new complexities tied to connected devices, social media and personalization are making it harder to move beyond the 30-second spot than it seemed a short while ago.
Recent forums featuring discussions among leading advertising executives at agencies, service providers, Web companies and technology suppliers make clear that as video consumption spreads across connected devices of all types, the old TV versus online dichotomy has been supplanted by a perspective that seeks to maximize advertising effectiveness on video wherever it is consumed. For service providers who are banking on advanced advertising as a new revenue source, the message is: think out of the (set-top) box when it comes to building an advanced advertising platform that will draw advertisers’ participation.
“We have to redefine what TV is,” says Lori Schwartz, chief technology catalyst, McCann Worldgroup, North America. “We have to be thinking about connected TVs, 4G and tablets. It’s not going to be about big long-term broadcast buys. It’s going to be more complex with the goal of reaching the right audience wherever they are.”
“It’s not just about reach and frequency anymore,” agrees Jen Soch, senior vice president and activation director for advanced TV at MediaVest. “What we measure and define as the results we’re looking for is all going to change. There will be $2 billion spent in the U.S. on targeted ads on the Internet this year .”
While Soch acknowledges trials of targeted VOD advertising with Comcast have shown “third-party data processing is really working” in the cable TV space (see March 2010, p. 8), the availability of data for such processing lags far behind data that can be used for Internet advertising. “The volume of useful Internet data is exponentially bigger,” she says.
Adjusting to Web 3.0
For some content providers, the shift in consumer consumption patterns has already become a central part of their Internet advertising strategies. “You have to be everywhere,” says Gabe Vehovsky, executive vice president of strategy and client solutions for digital media at Discovery Communcations. “Web 3.0 is about listening to the consumer. We’re spending tons of time learning where they are and helping advertisers find them.”
The focus on multi-device advertising strategies where TV becomes a subset rather than a separate category over time is, of course, music to Google’s ears. “We’re really trying to convey a platform that transfers across devices and delivers content and advertising that’s relevant to consumers,” says Seth Barron, advertising program manager for Google’s YouTube, in reference to the company’s overall strategy.
“How it will evolve remains to be seen,” Barron quickly adds. “The ecosystem for apps for Google TV is still new. The Chrome app store is very new. The timing for TV will depend on consumer behavior.”
But Google is confident time is on the side of Web-based video viewing, where tracking user engagement through interactivity and the avoidance of ad skipping are big pluses for advertisers. “If you’re buying a spot on TV and paying for a gross rating point, someone can be in the bathroom and you still have to pay for that rating point,” says Aaron Rothman, senior product manager at Google. “I do think a lot of the spend in TV dollars is going to go to the video space online, because advertisers get so much more in terms of engagement of the audience.”
Traditional TV advertising advocates frequently note that, for all the ballyhoo about video consumption on the Web, TV viewing time continues to inch up on a per-household basis. But, in an emerging era where, as Schwartz notes, the spend is about where value can be found through engagement with the right audience, trends on YouTube point to growing value for advertisers who choose to funnel their spending in that direction.
“The metrics on the pace of scaling on YouTube are mind blowing,” Barron says. “People are consuming two billion streams per day. Advertisers are coming to popular creators and building special initiatives around what they’re doing. We’re very clear about innovating on new pricing models to help a whole new community of content creators to monetize their business.”
Video advertising on the Web, as a segment of display advertising, remains a small piece of the pie, although, of course, much display advertising in non-video mode surrounds video clips on the Web. Overall, Internet advertising, at $18.5 billion through the first three quarters, was on pace to hit or come close to the projected 10.8 percent growth for 2010 that was foreseen by research firm eMarketer in May. The Interactive Advertising Bureau and PwC US (formerly Pricewaterhouse Cooper), in their latest quarterly report, said third-quarter U.S. Internet revenues hit $6.4 billion, an all-time quarterly high, which followed an all-time six-month high of $12.1 billion.
Display-related advertising totaled more than $4.4 billion in the first half (the Q3 report didn’t break out the revenues by categories), up nearly 16 percent from a year earlier. Digital video continued record growth, with a first-half performance at $627 million that was up 31 percent over first half 2009.
Search advertising remains the largest percentage of overall interactive spend at 47 percent, representing more than $5.7 billion for the first six months of 2010, up 11.6 percent from the same period in 2009, IAB said. At over $25 billion on the year, total Internet advertising would be just $10.3 billion under the $35.3 billion projected for national TV advertising at the outset of last year by Magna, a unit of Interpublic Group.
Magna’s national TV revenue projection for 2010, representing a 6.2 percent increase over 2009, appeared to be in the ballpark as various networks reported strong performance over the first three quarters. Local TV advertising was projected by Magna to hit $14.3 billion, representing a one percent drop from 2009, following a 20 percent decline from 2008.
Agents of Change
Clearly, when it comes to new thinking about multi-screen advertising, the search for new approaches will continue to be overshadowed by the big spend on linear TV spots. “The 30-second spot is not dead,” says Lisa Meier, regional senior vice president for media sales at Time Warner Cable. “There are plenty of opportunities to do national brand advertising but also to version and scale ads to markets and zones.”
But it’s equally clear that the fledgling push toward addressable advertising is already having a big impact on how Madison Avenue operates. “We’re seeing two behaviors that are absolutely new and critical to the future of advertising,” says Shelly Palmer, managing director of the Advanced Media Ventures Group, LLC, and president of the National Academy of Television Arts %26 Sciences. “One, people are taking TV with them on smartphones and on tablets. Two, consumers can talk to each other at scale through social media. However you want to look at them, these two trends have changed the game in profound and meaningful ways.”
Indeed, says Ian Foley, senior director of the emerging platforms business development at YuMe, an ad network supplier now serving 600 publishers on about 1.6 billion video streams per month, “There’s a huge interest among advertisers to control the iPad space. CPMs are high. They have high resolution screens with good user interfaces, and they’re mobile. The question is, to what extent does the tablet become a replacement for the traditional set-top experience?”
Kevin Smith, group vice president for Comcast Spotlight’s integrated media sales, says that a million people have already signed up for the iPad application for controlling DVRs and navigating Xfinity content that Comcast introduced in mid November. “It’s a game changer,” Smith says in reference to tablets in general. “It’s your remote control, your program guide; it becomes your streaming player and t-commerce platform.”
Is it going to be an important extension of Comcast’s advertising platform? “These are early developments,” Smith says. “Can we make that a viewing device? It’s all a part of TV Everywhere. The challenge will be, is the viewing audience large enough to turn it into a source of advertising revenues.”
But advertising on tablets may not be strictly about the extent to which people use the devices to supplement TV viewing, notes Google’s Barron. “There’s a shift to multi-device simultaneous viewing among consumers, so we need to be building applications [such as Comcast has done] that tie the tablet into the TV viewing experience.” The tablet fits right into the Google TV agenda, which is to bring the searchability and breadth of options from the Web to the TV, he adds.
Smartphones, too, have now become tableaus for ad placements in long-form video. “I didn’t think we’d see long-form TV on phones.,” Foley says, echoing the surprise shared by many people in advertising and mobile. “With advertisers we thought the play would be with snack-based content. But now that we’re seeing long-form viewing we’re helping with getting advertising placements in that content. The consumer demand is there.”
Media advertising analyst BIA/Kelsey expects U.S. mobile advertising in general to grow from $491 million in 2009 to $2.9 billion in 2014, with display revenues quadrupling in that period from $206 million to $803 million. By that time eMarketer projects Internet advertising will have spiked to $36.3 million, marking a 44 percent jump from the $25.1 million the firm projected for 2010. By contrast, if BIA/Kelsey’s numbers prove out, mobile will have jumped by 273 percent over the same time frame.
But advertisers are still finding their way with mobile. For example, it remains to be seen what the value proposition is for location-based advertising, where people in proximity to a retail outlet of some kind are given an incentive offer to come in and make a purchase, says Greg Johnson, executive creative director at William Morris Endeavor Entertainment. For example, he says, “There’s a lot of hype around Foursquare, but there’s no real business model.”
Foursquare has famously promoted social networking among people going to restaurants with elections of “mayors” of various establishments worldwide. Pointing to discount offers such as 25 cents off a Starbucks coffee in location-based advertising, Johnson says, “I check in, and I don’t care.”
“I don’t care,” echoes Nada Stirratt, chief revenue officer for MySpace. “Consumer behavior isn’t going to change with 25 cent off going to Starbucks,” Stiratt says. “But if there’s a list of 25 Chinese restaurants and I have a party of eight looking for a good place to eat, there’s an opportunity for them to offer me a special promotion that will sway our choice. There’s value there for the retailer as I get near the target for them to vie for my business.”
“Location-based service has to figure out where the lowest barrier to entry is for maximizing value to the consumer,” Barron says. “You care when you get value. There’s an interesting opportunity for monetization [of such advertising].”
But other advertising strategists aren’t so sure. “I’m not interested in useless localism,” says Jeff Lanctot, managing director for Microsoft Advertising. “For us the key is to focus on the CRM (customer relationship management) component. Determine what engages them, and I’ll provide the app.”
Uncertainties over new ideas in use of mobile for location-based offers and social networking-related value enhancements extend into other new areas relating to social networks generally and to new businesses built on promoting discount offers locally. “Social networks in some ways are a race to the bottom,” says Discovery’s Vehovsky, in reference to diminishing returns resulting from discount competition. “The Chinese restaurant idea is an example of that. The challenge for us in working with brands is to create value.”
Executives also question the staying power of a discount-based business like Groupon, which recently turned down a $6-billion buyout offer from Google and is now pursuing a $15- billion IPO. “There’s going to be fatigue with Groupon on the small business side,” predicts Johnson of William Morris. “Groupon thinks it generates revenues, but most businesses lose money on the deal and don’t know how to take advantage of the new leads these offers create when customers walk through the door.”
“Groupon is going to be forced to provide new services,” Lanctot says. “Their small business customers are not going to come back unless they can predict how many people who take them up on offers can be turned into regular customers.”
There’s fatigue with Groupon, concurs John Capano, senior vice president and director of digital strategy at Wunderman, the direct marketing arm of Young %26 Rubicam. Capano also questions the business value of Facebook’s Like button innovation, where consumers’ endorsements of products and entertainment serve as viral promotions for providers. “At some point people are going to want a kickback for their endorsements,” he says, suggesting there might eventually be some value to the viral marketing approach if a consumer gets rewarded for recommending a just-purchased item to friends.
But there is great potential in social media, many experts contend, if ways can be found to show advertising placed in these environments is generating revenues. “Our clients are saying they don’t just want to know the number of clicks or impressions and how much time consumers spend with their messages,” says Jeff Minsky, director for NEXT Emerging media at Omnicom Group’s OMD Ignition Factory. “I want to know how much revenue I’m generating. Just because a big advertiser is on Facebook doesn’t mean they have a social media campaign.”
MySpace is putting a lot of effort behind creating ad containers (placement options) that provide contextually relevant opportunities with extensive measurement of results, Stirratt says. “We’re developing social shopping tools where you let friends know when you’re buying something and you create a whirlwind of activity,” she says. “It’s all based on a ton of work in our usability lab where we’re testing biometrics reactions to ad containers before taking them to market.”
However social media is used, says Marc Ruxin, chief innovation officer at Universal McCann, the experimental label will quickly vanish. “Facebook is a massive publisher; it’s a straight-up media buy,” Ruxin says. “If a TV spot goes to YouTube it should not be seen as experimental. Five years from now social media will be just another media buy.”
The Data Challenge
But whatever the next big things are going to be in the ever-more fragmented world of multi-device advertising, it’s clear that some big changes must be made with regard to how data is collected, managed and applied to produce value in all these spaces. “Data is the new creative,” says Shelly Palmer.
“First accounting people were rock stars,” says Seth Haberman, founder and CEO of advanced advertising placement supplier Visible World. “Then it was creative, followed by media buyers. Now it’s going to be the people who deliver performance and behavioral analytics. Data people will be the new rock stars.”
But first they need an audience, and, as things stand now, a lot of people driving decisions in advertising are not focused on what needs to be done on the data side, says McCann’s Lori Schwartz. “When we get into discussions with clients about using advanced platforms, their loyalty is to programming and data that are so old and legacy oriented, it makes it hard to connect to the solution,” she says. “But does that mean the client is supposed to say, ŒThe numbers I have and my data plan are not workable?’”
It’s a big problem, acknowledges Tom Hagopian, vice president of addressable advertising at Acxiom, a supplier of data management services for marketing applications. “At many of the companies we work with people won’t cooperate internally,” Hagopian says. “Marketing wonks don’t understand the value of data and why they should extend it to the advertising people. They use privacy as an excuse, but the biggest reason is the complexity of organizing data and handing it off to others. There’s a lot of fear and greed in play.”
Availability of verifiable third-party data for advanced advertising is still a ways off, says MediaVest’s Jen Soch. “It will be in the 2012-2013 timeframe for everybody but cable,” she says. “For cable it will be 2014-2015.”
But with so much complexity and uncertainty to be worked through before a viable next-generation approach to advertising on video across a multi-device marketplace takes off, advertisers may find the near-term interactive capabilities now possible on cable’s EBIF platform represent the low-hanging fruit for advanced advertising that everyone has been looking for. There’s a real opportunity now to put interactive applications to work in the interest of driving higher advertising ROI on TV, says Time Warner Cable’s Lisa Meier.
“What can we do today to make the leap to where we have interactivity in TV advertising?” she asks. “We need to talk with each other and put something on the table. Testing and trialing should go toward discovering what we can do that’s meaningful to what advertisers are looking for, how we look at and shape performance. That’s my challenge, how to start talking in a meaningful way to move the ball forward.”