Facing rising content costs, operational expenses, and competition for consumer attention, multi-channel video program distributors (MVPDs) have begun searching for new ways to monetize stream viewership with the goal of boosting the business case for video. Recently, programmatic TV (PTV) advertising has emerged as a key area of interest for operators that believe it can help them generate more revenue from the streams they already deliver. While it is still in the early stages of growth, the PTV advertising market is expected to flourish in the coming years, eventually becoming the dominant way in which video ads are sold and placed. In this article we will discuss PTV advertising and the potential opportunity it presents for operators that move quickly to embrace the new technology.
The State of the TV Advertising Market
The sale of video advertisements has always been a key contributor to linear TV revenues. While the overall market for video ads remains sizeable at around $140 billion, to the dismay of both broadcasters and MVPDs, traditional TV’s share of the total advertising market has been steadily declining for years. According to WARC, a U.K.-based media research company, global TV ad spending on linear TV accounted for 41.9% of global ad spend in 2018, down nearly 8% from a peak share of 50% in 2014. This erosion can be attributed to marketer’s shifting their ad spend away from linear TV in favor of online, mobile, and connected TV advertising, which features more flexible targeting parameters, automated transactions, and detailed real-time measurement.
This trend has been particularly troublesome for MVPDs, including cable, satellite, and telco providers who offer paid subscription-based television services. It varies by region, but in North America these distributors are allowed to sell at least two minutes of advertising for every hour of programming they distribute. MVPD ad inventory has typically been used to insert local advertising, for example political ads and ads for regional businesses whose message is targeted at people within a specific geography. As competition for these ads has increased, distributors have found it difficult to respond, hampered by legacy TV distribution architectures and entrenched ad sales practices. However, things are beginning to change. MVPDs have begun to roll out new IP content delivery architectures and stream personalization technologies that enable them to sell individual ad impressions programmatically through online ad exchanges. Programmatic TV advertising (PTV) promises to boost MVPD revenues by expanding the market of potential advertisers, providing the means to raise CPMs by more precisely targeting TV consumers, and streamlining the ad transaction workflow. It also provides a mechanism for verifying placement of the ads and accurately reporting revenues.
Introducing Programmatic TV Advertising
PTV is an entirely new way of selling TV ad avail inventories - inventories of ad placement opportunities. Programmatic advertising requires the ad avail inventory owner, in this case MVPDs, to support an automated ad sales workflow. This includes the ability to sell, place, and measure individual ad impressions in real-time. Ad transactions are conducted through ad exchanges, online marketplaces that auction individual ad avails to advertisers. Through these exchanges, marketers can search for avail inventory to bid on using finely detailed targeting parameters derived from addressable and contextual data. Addressable data includes anonymized consumer profile information, while contextual data provides details about the inventory and viewing session such as channel, program, device type, and geography information, as well as other relevant targeting factors. Once an ad avail is presented, ad exchanges run an auction process, accepting bids for ad space and awarding it to the highest bidder. When the auction closes, ad content is immediately handed off to the avail inventory owner for insertion. The inventory owner must successfully insert the ad and return performance metrics to the ad exchange to verify placement and complete the transaction cycle.The advantages of PTV advertising include:
- Higher Ad Revenues (CPMs)
PTV advertising is highly targeted. Detailed contextual data enables advertisers to more accurately target their audience, reducing waste, and improving ad effectiveness. In addition, competitive auctioning of inventory helps to drive higher CPMs. As a result, PTV ads are expected to generate higher revenues for MVPDs versus traditional ad sales approaches.
- Reduced Cost
PTV automates the process of selling and inserting advertisements. Ad transactions are accomplished without any human interaction or administrative overhead, reducing cost and improving profit margins for the inventory owner.
- New Business
PTV enables MVPD ad avail inventory to be aggregated. Aggregating inventory across multiple distributors improves scale, which is important to national advertisers. This puts MVPDs in a position to compete with big broadcast networks for national ad spend. With a greater number of advertisers bidding on constrained inventory, CPMs and revenues are expected to trend upwards.
- Better Fill Rate
Online ad exchanges expose TV inventory to more advertisers. This reduces the risk that inventory goes unsold and maximizes revenue yield.
The Rise of Programmatic TV Advertising
PTV advertising is still a relatively small proportion of the overall TV ad market, but it is projected to grow fast. According to e-marketer, $2.77 billion will be spent in 2019 on PTV ads and this figure will nearly double in 2020. In fact, since 2016, the market for PTV advertising has risen a whopping 433%. It is still early days, but there are several reasons to believe that market growth will continue, namely:
- Advertisers Prefer Programmatic Advertising
One reason to expect continued growth is that advertisers prefer PTV advertising to other ad buying methods. Specifically, advertisers like that they can buy and bid on ads across TV, online, and mobile inventories from a single pane of glass. According to a study by the Interactive Advertising Bureau (IAB), 80% of advertisers agree that a unified multi-platform buying solution (TV + digital video) is important to them. Programmatic TV makes it easier to buy ads and easier to measure the performance of those ads, making it an ideal solution for marketers who want to connect with customers on multiple screens.
- Programmatic ads deliver better results
PTV advertising allows marketers to more accurately target the consumers that matter most to them. Recent studies suggest that PTV increases engagement levels by more than 150% versus traditional TV ad campaigns, helping to drive greater consumer interest at a lower cost. Advertisers can also quickly assess the success of their campaigns using real-time data on ad performance, allowing them to fine tune their targeting and prevent critical ad spend from being wasted.
- The video technology required to support PTV is now being widely deployed
PTV has drawn news interest for several years, but in the past MVPD networks were not ready to support automated ad sales workflows. Today, a growing number of operators are making headway on transitioning mainline linear and time-shifted television services to IP, opening the door to PTV advertising. As more TV viewership migrates toward IP-based services, the PTV revenue opportunity will continue to grow in relation to IP subscriber counts.
- Familiarity and Awareness is Improving
One of the biggest barriers to growth in PTV advertising has been lack of awareness and familiarity with the technology. Advertisers want to be cautious about safeguarding the relationship they have with consumers by making sure ads are only placed in content that aligns with their brand values. MVPDs want to avoid disrupting legacy sources of ad revenue and to grow CPM values. Fortunately, early data suggests that PTV delivers benefits to both stakeholders and with more familiarity, awareness, and proven success, PTV advertising is poised to continue its healthy growth trajectory.
How does it work?
There are several steps involved in making Programmatic TV advertising work.
- Step 1 – Data Gathering
PTV ad platforms gather relevant addressable and contextual data from a variety of sources to form a more complete portrait of the consumer. This may include information about device type, geography, service subscription and other anonymized consumer metadata. This information is used by targeting algorithms to match up advertisements with inventory.
- Step 2 – Ad Detection
Ad markers in streamed video content are detected a few seconds in advance of an ad placement opportunity, triggering the automated ad sales workflow to begin. Contextual and addressable data is assembled and packaged to form an auction.
- Step 3 – Ad Auction
Multiple ad exchanges are notified that an ad placement opportunity exists along with the relevant data for targeting purposes. Exchanges match relevant ads with the placement opportunity and bids are committed.
- Step 4 – Auction Closes
The advertiser that bids the highest price wins and is notified.
- Step 5 – Ad Placement
Ads are fetched and automatically transcoded as needed to suit the consumer device and video player. Ads are stitched into active video streams to deliver a seamless viewing session for the consumer. Ad content is cached inside of the content delivery network so it may be used for subsequent events.
- Step 6 – Ad Verification and Performance Metrics
Data is gathered and reported back to the advertiser to confirm that the ad was successfully placed and convey the associated performance metrics. Independent reports are also generated for the ad seller to ensure accurate revenue collection.
How to get started
Building a PTV solution from scratch can be difficult given the integration complexities and multiple parties involved. Interfacing multiple ad exchanges into the foundational network to enable a reliable, low-latency workflow requires specialized expertise and a strong knowledge of the underlying network. Fortunately, MVPDs can now buy complete end-to-end PTV advertising solutions that make it easier to get started. All-in-one PTV solutions manage the entire PTV advertising workflow and include the services required to get everything up and running. Working with the right supplier, MVPDs can start taking advantage of rapid growth in the PTV advertising market, improve the monetization of live services, and generate more value from every stream they deliver.