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> The hope is that this will not only create compelling user experiences, but also unlock access to the tens of billions of ad dollars that are currently spent
by exelius 10y ago
> The hope is that this will not only create compelling user experiences, but also unlock access to the tens of billions of ad dollars that are currently spent on TV.
This is simply not gonna happen. I used to think that as well -- until I did a stint working with one of the biggest sellers of TV ad inventory.
It's a completely different game. TV ads are bought and sold in enormous, packaged deals. There's very, very little transparency in the TV advertising game. Everyone on both sides knows Nielsen ratings are total crap with very little bearing on reality, but they trust each other even less, so Nielsen it is. All anyone knows is that TV is great for brand advertising, and you can get a rough estimate of how many eyeballs saw your ad on a given night. With brand advertising, all you care about is the number of brand impressions you make on your target consumer in a given month to keep the brand value fresh in their mind (i.e. "Ford trucks are Built Ford Tough").
TV ads are sold based on personal relationships between reps at advertisers and publishers. That's it. The ad rates you can get for ads sold through traditional TV sales channels are 30-40% higher than digital ads on a per-impression basis. The reason for that? The buyers are more senior, have larger budgets, and less accountability.
That TV ad money is literally just disappearing as audiences scatter to various media platforms -- these older, more senior ad executives don't understand digital so it's left to the younger guys who have a much larger culture of accountability and measuring by the metrics. The Internet has created so many opportunities for advertising and so much transparency around pricing for those ads that nobody can justify TV-like rates for digital ad impressions.
Think of the things that advertise on TV: they're nearly all high-value goods or services that need to establish a brand reputation. They can (and do) do that online for a lot less per impression, and they don't need to run an equivalent dollar amount of impressions because the online publishing space has created so much inventory they can't even sell it all (creating so-called "remnant" inventory filled programmatically by algorithms at rock-bottom CPMs). But only the "premium" publishers (i.e. anyone with a non-advertising revenue stream like New York Times) can afford to limit their inventory in such a way as to demand higher CPMs: everyone else is in a race to the bottom just to survive.
But it's gotten to a point where ad rates are so low that for premium publishers able to succeed with a subscription model, they may not even be a material amount of money. See: Netflix, Amazon Prime Video, etc. In 5 or 10 years, we may get to a point where all "premium" video services are delivered through a subscription model without advertising. That TV money has to go elsewhere, but it's likely to be spent on non-digital forms of advertising (e.g. outdoor/billboards, corporate sponsorships, product placement, etc.)
tldr: Online will never see the type of ad money that TV generated because the balance of power has shifted from the publishers to the advertisers. The next generation of ad buyers will be much more savvy, and the digital publishers have created far too much ad inventory. There's a tragedy of the commons situation with publishers that will continue to drive down CPMs while inventory increases, because if they don't then they will die. Because of low ad rates, it's not really worth it for premium video publishers to compromise their user experience by subjecting their paying customers to advertising -- thus driving the ad money from the big brands out of premium video content and on to other, non-digital forms of brand advertising.
- a_small_island 10y ago>(creating so-called "remnant" inventory filled programmatically by algorithms at rock-bottom CPMs) I'm confused. You're describing online ad services, correct? TV advertising also has remnant inventory which sells at rock bottom prices. Point being?
- exelius 10y agoTV remnant inventory is usually sold at the local level and is nowhere near as large a percentage of of the pie as it is online. It's also hard to "create" more inventory on TV - not so online; which is exactly what publishers do when their CPMs start to drop. They'll add more slots for banner ads, interstitials, split articles into multiple pages... This increases total revenue for a while, but ultimately crushes your CPMs. There's a floor on TV advertising of about 16-20 minutes of advertising per hour. More than that and you start to turn your users off in huge numbers.
- AndrewKemendo 10y agoI think you are missing his point. Usage demographics are moving off of TV, so advertisers have to follow. It's not like how it sells will be different, it's that retailers are going to go to TV sales people less. There will be fewer TV advertisers, and the money that in the past would have been spent on TV ads will be spent on digital ads. I don't think it will be a 1:1, I think it will be a 1:.5 for a while, putting a lot of those people you talk about out of business completely - just like travel agents.
- exelius 10y agoI agree that TV advertising will go away, but keep in mind when I say "advertiser" I'm speaking of companies purchasing advertising slots (not the ones selling them - they're typically referred to as publishers). The ones selling TV ads will definitely go away. Digital ads have a totally different sales model and level of "prestige" that is unattractive to the type of advertisers who make up the bulk of the national TV advertising market where the majority of the billions are spent. Most TV advertising falls under the category of brand marketing, where you just want to get your company's name out in front of consumers X times per week so that they remain familiar with your value proposition. If you see 10 ads for "$5 Footlongs" in a week, Subway will be at the top of your mind when you are hungry and want to eat for like $5. Digital impressions are much easier to ignore, so you risk overexposing your brand in order to get the desired effect across all consumers in the market. Basically, if you have a $100 million advertising budget, you're going to try to spend that in as few places as possible while getting the most bang for your buck. Digital is already a component of total ad spend for these guys, and they're probably not going to increase digital ad spend significantly because most of them are already at the point of diminishing returns on their digital spend. There's just too much inventory and not enough advertisers, so the pricing pressure in digital leads to a race to the bottom for publishers who don't have other revenue streams. My hypothesis is that this money will end up in two places: outdoor advertising (billboards, bus stops, etc.) and on actual content production. Why make an ad that nobody wants to watch when you can hire RoosterTeeth or PewDiePie to make entertaining content that prominently features your products? The problem for the advertising platforms is that this money bypasses them completely and ends up in the hands of the production houses. Not to say that digital advertising won't continue to be a component of total marketing spend -- it will be, and in a big way. But not to the same level that TV is today, because the power in the relationship has switched. Digital ads aren't a limited commodity like TV ads are - you can only show so many 30 second spots during the Super Bowl. That means advertisers can apply significant downward pressure on pricing, which is much harder for them to do when there is a limited supply of ad inventory that has to be sold in large chunks. All of this leads to a situation where the publishers have less of a monopoly, and thus less ability to dictate pricing. Which means prices will go down until margins hit commodity levels (3-5% above cost).