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InContext / An inside look at the business of digital content

How digital, streaming services are pushing linear TV to innovate

June 21, 2018 | By Mark Glaser, Founder and Publisher – MediaShift @mediatwit

The idea that digital is the new TV is no longer just an idea, but a reality for many media consumers. A recent report from the measurement company Zenith predicts that next year will be the first year that internet usage globally will eclipse TV time; the same will be true in the U.S. by 2020.

However, that doesn’t mean linear TV — to pinpoint the old-fashioned kind of television programming long associated with the word “TV” — is heaving its last breath. Yes, scaling up against the tech behemoths like Google, Facebook, and Netflix, which are squeezing into the programming space, is a tall order. But linear TV companies can survive by accelerating innovation their own way. They must focus on targeted and addressable ads, emphasize brand safety, and become more like their streaming competition.

Deconstructing TV Advertising

Traditional 30-second commercials still have a place in U.S. television programming, particularly around high-profile events like the Super Bowl. However, alongside the growth of over-the-top television has been the tendency for people to skip over ads with the press of a button. As early as 2010, 86% of TV viewers skipped over ads while catching up on programming saved by their digital recorders. Streaming services such as Netflix and Amazon Prime Video are attractive in part because there is no advertising.

At least not in the form advertising blocks or commercial messages. But there is a less obvious form of advertising happening on streaming services more often than ever: the old-fashioned product placement. Whether show characters eat a certain kind of food or use a particular app, advertisers are working it to get their products written into storylines. KFC’s deal with Netflix to appear in “Stranger Things” is a clear example of product placement in action.

And the revenue makes the trend clear. While the actual number of product placements executed this year declined, the value of each integration has been increasing since 2009, according to Patrick Quinn, president of PQ Media. He predicts the U.S. product placement marketplace will exceed $10 billion this year, thanks largely to more valuable plot integrations — which, essentially, amounts to a more creative form of advertising. So, for linear TV to thrive, it will need to get even more clever with product placements and make them a bigger part of the mix.

Working the Data and Brand Safety

At the same time product placements are booming, and some advertisers are becoming less incentivized to spend money on the diminishing demographics tuning into traditional TV, digital has also had a leg up in another realm: targeted advertising. The wealth of data our digital footprints leave behind has made it easier to cater ads for the niche interests of an individual.

But that’s not to say there isn’t opportunity for cable providers to experiment with targeted ads as well; AT&T, for example, already sells addressable TV — the linear TV version of targeted advertising — through DirecTV, which it purchased a few years ago. With AT&T’s purchase of Time Warner finally approved, this is the chance for AT&T to up the ante and try to scale this up further. The telecom giant has already been working to build a team to focus on addressable ads.

Indeed, one of AT&T’s rationales when purchasing Time Warner was that it needed a bigger advertising platform to compete with the Facebook-Google duopoly. What it lacked prior to scale is what Time Warner can offer: inventory. The pool of content that Time Warner brings to AT&T’s ad platform gives it a fighting chance against Google’s dominant ad buying platform. While Google has had to deal with objectionable content appearing alongside adverts on YouTube, AT&T has the chance here to emphasize its brand safety. And that is what the company, and others, have been pointing out.

A (Realistic) Look to the Future

Still, even if addressable advertising presents a huge economic boost for linear TV — according to the investment bank Credit Suisse, it’s a potential $100 billion opportunity — that doesn’t mean anything AT&T wants to do will happen overnight. Aside from DirecTV and other apps in their own ecosystem, channels under the AT&T-Time Warner banner will have to work out deals with cable companies — which distribute the majority of Time Warner programs — if it wants to use AT&T’s data to beam ads to every house in the country.

While “audience-based” TV ad buying is growing, it’s still minuscule in comparison to traditional TV ads. It makes up only about 10 percent of total TV advertising, according to research from eMarketer. “In terms of the future, it continues to be much more of an addressable (data-driven digital) world as consumers go over-the-top, but that doesn’t mean traditional demographic targeting won’t still play a massive role in the TV advertising ecosystem,” Aleck Schleider, SVP of client and data strategy at the video advertising platform Videology, told Axios’ Sara Fischer. “Especially because the digital TV ad space is still so fragmented and demographic advertising is very unified.”

What’s more, it may very well be that TV commercials still have a future — but in a shorter form. A recent study by the Advertising Research Foundation found that six-second ads on broadcast and network TV capture more attention per second than standard 30-second commercials.

Bottom line: The best bet for linear TV companies is to forget about being linear TV companies and put digital innovation at the top of the priority list. Working toward quality addressable advertising is one way. So too is emphasizing the brand safety issues that tech giants are struggling with (while ensuring that there’s action behind the talk). And maybe the best bet is working to make advertising better, whether it’s with more creative ad integrations in network TV or shorter commercials to appeal to our ever-decreasing attention spans.

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