Addressability Is Game Changer In OTT TV Monetization Debate
Success of Cross-Platform Ad Purchasing Solutions Opens Opportunities in Streaming Domain
By Fred Dawson
June 13, 2019 – Ad-supported approaches to monetizing digital video services are still playing a distant second fiddle to subscription-based models, but it looks like a market-wide shift to strategies heavily weighted toward reliance on advertising is in the offing, thanks in large part to the power of addressable technology.
Amid a persistent surge of entrants into the OTT video space, the combination of downward competitive pressure on subscription pricing and growing recognition that relevant ad placement in OTT-delivered TV programming offers untapped revenue upside has swung the monetization focus to advertising. The driving force behind the new perspective is what’s happening with TV advertisers, who, facing diminishing returns on traditional linear TV placements, are now feeling greater urgency than ever to reach OTT audiences.
Comcast’s advertising support firm FreeWheel, in a recent a survey of more than 200 advertisers and agencies, found that 52 percent of agencies are currently buying from digital as well as traditional TV inventory and 91 percent plan to do so by 2021. This squares with a survey of 150 brand marketers and ad agencies conducted in mid-2018 by researcher Advertiser Perceptions for advertising software supplier SteelHouse, which found that 78 percent planned to buy ad inventory on streaming TV over the next 12 months.
OTT service providers are feeling the impact and adjusting accordingly. For example, Hulu says ad revenue approached $1.5 billion in 2018 in tandem with a nine-fold increase in the number of advertisers transacting on its platform. With an average of 2.9 viewers per account, the company says its $5.99-per-month ad-supported service reaches 58 million viewers, representing 70 percent of total viewership on all accounts, which also include an ad-free option priced at $11.99.
Getting the most out of advanced advertising technology to make ads as viewer friendly as possible is a top priority, says Hulu CTO Dan Phillips. “We’re innovating in advertising with a focus on transforming TV ads by putting the viewer first,” Phillips says. “We’re able to innovate in ways that cable can’t.”
Beyond the efforts of individual services, the connected TV (CTV) domain has become a hotbed of activity aimed at curating dynamic advertising placement across multiple OTT outlets in the lean-back viewing space. “Most of the top 70 cable networks are down in viewership, some in double digits,” says Daniel Hahn, head of agency and brand partnerships at Adobe’s Ad Cloud TV unit. “For many advertisers, the best place to shift their money is to CTV. Tons of advertisers are planning to make the shift.”
That makes sense, says Jason Bolles, senior vice president of advanced advertising at Nielsen. “Going from February 2015 when 16 percent of U.S. households had smart TVs we’re now at 45 percent, and the number of households with devices or smart TVs capable of streaming OTT video to the TV set is at 71 percent,” he notes.
But turning CTVs into advertising platforms won’t be easy under current conditions. “It’s pretty messy right now trying to work with TV manufacturers and their platforms,” he says. “There’s a lot of frustration on making data and measurements available. Some CE companies built their platforms with the ability to register measurements, but many didn’t.”
That’s changing as individual companies and a plethora of industry alliances act to remedy the measurement and many other encumbrances, which are by no means limited to the CTV environment. As a result, there’s a growing likelihood that the scale-tipping element in the strategic debate over OTT service monetization will be the fusion of automation and addressability that’s already delivering higher ROI on ad spend and better returns on inventory for sellers who invest in the enabling technologies.
Hulu’s strategy shines a light on what can be done. Phillips lists four key areas of innovation beyond addressability that are making the case: transactional support enabling viewers to interact with advertising to do things like shop through second-screen connections or get electronic coupons delivered to their phones; empowering viewers to choose ad experiences based on choices of branded entertainment; integrating of story telling with brands in non-intrusive ways, and situational ad selection based on what viewers are doing, such as initiating an ad when a viewer hits pause or adjusting ad placements in binge-viewing situations.
“Our research shows two thirds of viewers feel our ads are less intrusive,” he says. “Everything starts with the viewer at Hulu.”
Another example of what can be done is underway in the CTV space, where Roku is registering success with an aggressive advanced advertising strategy. The box maker cum service aggregator, having increased its account base by 40 percent to 27 million in 2018, says it’s now generating more revenue from advertising and media contracts than from box sales.
Roku’s approach is unique. Rather than trying to monetize its programmatic market-exchange platform by charging distribution partners a share of every advertising dollar generated from the platform, the company contracts for a share of inventory from each participating provider, which it then sells directly to agencies. This allows content providers use of the platform for placements with the rest of their inventory at no additional cost.
“Our goal is to make things as simple and natively integrated as possible,” says Youssef Ben Youssef, advertising business lead for Roku. This isn’t about inventing new technology, he adds.
“From a platform perspective, we work with companies involved in the delivery and placement of ads,” Ben Youssef says. “We follow traditional approaches with involvement in standards organizations, meeting the requirements of supply chain authentication.”
The secret sauce is “more a matter of collaboration between various supply chain platforms,” he notes. “It allows us to better explain how you can buy from one platform and find the audiences you’re looking for. You pick and choose from a vast inventory with just one buy.”
Making Addressability Viable
While addressability tied to contextual viewing is a baseline, more personalized targeting is gaining traction as well, especially in the OTT domain. Notably, CPMs with highly targeted advertising are running at a 50 percent premium or more over generic spot CPMs.
Sellers wary of buyers’ sticker shock over the costs of ad targeting need to be able to explain why buyers are actually paying less to reach the people they’re after, says Jamie Power, COO of addressable at Cadent, a leading supplier of advanced advertising technology. “If the national household CPM is $5, and the brand is only targeting 10 percent of households, the brand is really paying a $50 household eCPM (effective cost per thousand impressions) to reach that specific audience, once you factor out the waste,” she says in a recent blog post.
“As long as the addressable CPM is below the $50 eCPM, it delivers higher ROI in reaching the specified audience,” she adds. “The ability to close the loop on television effectiveness delivers immeasurable incremental value.”
But addressability needs scale to work, and there remains uncertainty about how pervasive the support will be. Indeed, after decades of discussion about TV advertising addressability, spending on addressable advertising, at about $2 billion in 2018 and headed to $2.5 billion in 2019, represents just 3.6 percent of the $70-billion TV advertising spend, as measured by eMarketer.
The stat to watch, though, is the 25 percent year-to-year jump in those numbers. The acceleration is sure to persist, assuming sellers open their inventory to addressability on a scale commensurate with the number of addressable-enabled TV households.
That’s because, as noted by Power, only an eighth of the inventory that could be used to target 65 million addressable-enabled U.S. TV households is currently sold as addressable inventory. “The largest addressable multichannel video programming distributor (MVPD) delivers only 16 percent coverage against U.S. TV households,” she notes.
There are plenty of addressability naysayers reiterating points long made about the issues that can be used to justify inaction, They cite lack of common valuation currency, data incoherencies and deficiencies, limited footprints, difficulties of implementing dynamic just-in-time placements in both the digital and legacy TV domains, creative and other costs and the need to deal with multiple market exchanges.
“The biggest challenge the marketplace faces now is identifying what’s truly possible with the medium,” Power notes. “Many discuss addressable without a full understanding of the opportunities this new medium brings.”
This was brought home by a recent survey of executives at OTT video providers conducted by the analyst group TV[R]EV, which found that while 63 percent of respondents believe advertising is growing rapidly as a revenue source in the OTT TV space, 95 percent believe the ability to measure results remains a big problem. As often reported in these pages, myriad suppliers of streaming platforms, CDN services, performance-monitoring client software, app-specific players and anyone else with visibility into end user devices have equipped their products to generate this type of data, some in conjunction with purpose-built analytics engines, others with inclusion of APIs enabling direct integration with such analytics tools.
And while 28 percent of respondents to the TV[R]EV survey said they believe all OTT TV advertising should be sold on an addressable basis, only 17 percent said they were very familiar with sell-side platforms (SSPs) that help automate categorization, pricing and presentation of inventory. Similarly, just 19 percent voiced familiarity with demand-side platforms (DSPs) that automate the purchasing process.
Buyers, too, even though they’re growing accustomed to addressability in traditional TV, can be clueless about addressability in the OTT space. “Traditional ad buyers don’t understand addressability with digital,” says Geir Magnusson, Jr., CTO of fuboTV, the sports-slanted OTT provider. “It’s not a tech issue.”
Magnusson is in a good position to know, given fuboTV’s extensive use of dynamic advertising to supplement its subscription revenue. “Every stream for us is unique, allowing us to make the ad call for each user,” he says. “Our platform decides which ads to play on specific plays in real time.”
The confusion can’t last. As we hit the midway mark in 2019 the old can’t-do saws are getting long in the tooth amidst a surge in demand for addressability.
In fact, addressability, in the broadest use of the term, is inevitable in a market where diversity of devices and outlets forces video advertising toward audience-based buying. “From an advertisers’ standpoint the fundamental shift in how consumers are accessing content means you have to look at finding market segments based on platforms and devices,” says Sarah Foss, senior vice president of strategic initiatives at FreeWheel, which is a key partner in the Roku strategy and many more across the OTT and MVPD ecosystems.
“Now it’s not about getting to plays on network X,” Foss says. “People want to buy audiences.”
FreeWheel, offering automation, open integrations and data-driven insights to enable unified approaches to linear and digital TV advertising, is campaigning hard to persuade distributors that there’s a big upside to investing in such support. If the technology is in place to support addressability, “things will happen,” Foss says.
“You have to connect all the dots,” she adds, which includes everything from supporting collective buy/sell exchanges to systematizing and automating the end-to-end supply of metadata to amassing TV viewing data across all platforms. “If you’re an agency it’s really complicated to find all the ways you can use to reach the desired audience,” she adds. “There is no common set of sales channels.”
Another sign of progress in this direction can be found in the success Decentrix, a supplier of automation-enabled advertising yield management solutions that has quietly been contributing support for dynamic cross-platform advertising initiatives of major players like AT&T, Comcast, Verizon and Charter. As previously reported, the firm’s BIAnalytix Platform is designed to maximize seller inventory value through AI support for automated targeting of ad placements with minimal inventory churn.
One of the company’s latest innovations addresses a key issue with programmatic buying, notes Decentrix president Taras Bugir. “In the programmatic trading model there’s a propensity for brands’ ads to land on nefarious sites,” Bugir says. “With our frictionless trading solution, we’re enabling programmatic buying without those risks.”
Another new element to the Decentrix platform is the BIAnalytix Rate card, which uses dedicated machine learning to automatically generate cross-media rate cards based on the dynamic impact of sales demand pressure, seasonality and inventory availability. “It’s a way for you to get better control over your inventory rather than relying on the classic rate card model,” Bugir says.
With such support on offer, OTT service providers across the board are embracing strategies that raise the advertising profile, including ones like Pluto TV, recently purchased by Viacom, and Amazon’s new IMDb Freedive, which is accessible from computers and Amazon Fire TV devices. “AVOD (advertising-supported VOD) is a big trend,” says Glenn Goldstein, senior vice president and chief technology convergence officer for Viacom.
Moreover, dynamic advertising is a key monetization feature to be exploited in Viacom’s affiliation with MVPD partners’ TV Everywhere services, he adds. “TV Everywhere still has a lot of life left in it if we can make it less of a hassle for people to log in,” he says.
The Collaboration Factor
With the technical means now in place, the industry is engaging in ever more collaborative activities aimed at putting addressability squarely in the advertising mainstream. For example, in March Project OAR (Open Addressable Ready) got underway as a path to developing open standard for addressable advertising in the CTV space with backing from AMC Networks, AT&T’s Xandr, CBS, Comcast’s FreeWheel and NBCUniversal, Discovery, Disney’s Media Networks, Hearst Television, Turner and Vizio.
“The standard will define the baseline for ad delivery, impression verification and privacy compliance, but networks will have plenty of room to create unique and enriched advertising experiences,” says Jodie McAfee, senior vice president at Inscape, the Vizio-owned automated content recognition (ACR) technology firm that’s been tasked with developing the standard under consortium guidance. “We are making this flexible enough to enable interactivity and other bells and whistles that have yet to be imagined.”
Vizio has pledged that once the standard is developed it can be deployed on its opt-in footprint of connected TVs. The consortium anticipates other connected TV and device makers will adopt the standard as well.
“Project OAR aligns well with FreeWheel’s objective of supporting the industry to deliver scalable, addressable advertising solutions that will help make television an even more valuable platform for brand marketers,” says FreeWheel GM Dave Clark. “Bringing an addressability standard to smart TVs nicely complements solutions already available from MVPDs.”
For Comcast this is the latest in a string of collaborations through years of exploring the possibilities in addressability, which accelerated intensely five years ago when the firm acquired FreeWheel.
As previously reported, Comcast, Charter and Cox last year agreed to form a new division within their jointly owned ad sales company NCC Media for purposes of designing and deploying support for targeted advertising across all screens. At about the same time Viacom and Comcast said they’d completed a long-term deal enabling Viacom to utilize FreeWheel technology to target ads in linear and on-demand delivery of its programs. This followed Comcast’s agreement with Fox Network Group and its own NBCU enabling targeted ad placement in on-demand programming.
Paralleling all these efforts, the cross-platform addressability initiative driven by members of the OpenAp consortium, including Viacom, NBCUniversal and Fox (Turner dropped out following AT&T’s acquisition of Time Warner), has enhanced its support for a uniform approach to creating audience segments that can be used with all consortium TV networks in legacy and digital distribution environments. The consortium’s new OpenAp 2.0, with technical support from Accenture and FreeWheel, will establish a cross-publisher marketplace where buyers can create and submit orders for audience segments with access to pre-campaign performance projections and post-campaign delivery metrics, including total unduplicated reach, overall tCPM (target CPM impressions) and total audience impressions.
“With competition rising in every industry, marketers need new ways to define their audience and engage viewers across all platforms,” says Linda Yaccarino, chairman of advertising and client partnerships at NBCU. “Expanding OpenAP can help turn that vision into a reality.”
Meanwhile, AT&T, having pulled Turner out of OpenAp, has expanded its own pursuit of opportunities in addressability, folding its long-standing AdWorks placement business into its new business unit Xandr, Top officials have been saying the advertising strategy is a significant factor in their expectations for success with their revamped video services strategy.
Xandr, launched last year, is already producing significant results, officials say, pointing to a 26 percent increase in company ad revenue last year, not counting the contribution from sales of solutions marketed by its recently acquired analytics unit AppNexus. On an October Q3 earnings call AT&T chief financial officer John Stephens noted the disparity between Turner’s results, which showed a dip in ad revenue, and its advertising business, which at that point was up 22 percent on the year.
“We believe we’re just scratching the surface here,” Stephens said. “You can see what a difference targeted advertising makes when you look at the difference in the growth rates between AdWorks and Turner. Altogether, we have about $7 billion of consolidated annual ad revenues with a portion of that being addressable, highly targeted advertising.”