PARQOR is the handbook every media and technology executive needs to navigate the seismic shifts underway in the media business. Through in-depth analysis from a network of senior media and tech leaders, Andrew Rosen cuts through what's happening, highlights what it means and suggests where you should go next.
In Q4 2022, PARQOR will be focusing on four trends. This essay focuses on the themes, "Linear channels seem doomed. What happens next?" and "There is no such thing as a CTV household, what happens next?"
The more I think about it, the more I think the Procter & Gamble earnings call last month was a seismic event in advertising.
It has not popped up in my feeds or inbox as anything significant. But last week The Trade Desk CEO Jeff Green — whose Q1 2022 earnings call I wrote about in May and in “The Upfronts Model Isn’t Dead Yet” — highlighted comments by P&G CFO Andre Schulten on its FY Q1 2023 earnings call that I highlighted in last Friday’s essay.
To remind you, Schulten said on the earnings call :
“On the media investment, I think we really need to shift focus. It is difficult to describe media sufficiency in dollars, especially when we are actively shifting our spending from linear non-targeted TV into programmatic and into digital spend, that is a lot more targeted and a lot more precise in terms of delivering reach and quality of reach where we need it.”
Green spiked the proverbial football by repeating this quote to investors.
Key Takeaway
Looking at P&G's quarterly earnings more closely, the emerging market signal seems big and broad: brand advertising spend seems to have bought a one-way ticket from linear to digital.
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Total time reading: 5 minutes
It captures The Trade Desk’s value proposition as we head into 2023:
“what you're hearing from P&G there and what I hear from major brands around the world every day now is that programmatic is a central and critical component of any campaign. The world's most sophisticated advertisers understand that as they get more pressure from their CFOs to demonstrate the value and return of every advertising dollar, one of the best places to do that is on our platform. We provide objective, transparent measurement.
We provide precision and relevance. We allow advertisers to optimize based on real-time performance, and we provide access to the world's most advanced data marketplace including many of the world's biggest retailers. CMOs and CFOs are carefully watching cost and spend at this moment. It is why we are particularly excited by the growth on our platform this quarter.”
Back in the Q1 2022 call, Green argued the market was beginning to “embrace biddable environments and move away from legacy models, like upfronts and even programmatic-guaranteed." The Trade Desk — a digital media–buying platform that has bet heavily on Connected TV advertising — uniquely stood to benefit from these shifts in economics.
I think this proves his prediction was a bit premature. But now, I think he's shedding light on key changes that are only starting to get discussion.
Why a development is “seismic”
Back in May, I thought Green had made a mistake by doubting the future of upfronts: He argued the emergence of ad-supported models from Netflix, HBO Max and Disney+ “is requiring everyone to embrace biddable environments”. But I thought, “Linear inventory remains a reality for advertisers now and for the foreseeable future” because “the pivot to CTV is a sacrifice of the relative operational simplicity and premium economics of linear.”
I would define a development that is “seismic” as something that has enormous impact when it emerges, and will have ripple effects throughout the marketplace. There has been nothing seismic (yet) about three major streaming services offering programmatic: all are telling investors they are in the early days of “crawl-walk-run”, as COO Greg Peters likes to describe the process.
But message from P&G to its investors is that measuring success in dollar spend is too simple. Instead, as P&G CEO Jon Moeller told investors, “What we need to understand is what are our reach objectives and are we sufficient and spending to achieve those reach objectives, what are our objectives in terms of number of weeks on air achieving that reach. And that's how we'll measure sufficiency.”
He added: “we're moving a lot of the marketing activity set in-house. And so the cost for that in terms of, for example, purchasing media moves out of the advertising budget and into the overhead budget.” As I wrote on Friday, P&G’s move reflects a demand side shift away from upfronts.
Why P&G’s move is "seismic"
But, what Moeller is describing is a significant change.
First, Moeller is telling investors that marketing budgets are now less useful to the business. They aren’t dead (yet) — P&G reported $7.9B in marketing spend in Fiscal 2021 10K — but they are in the process of being reimagined. Marketing falls under Sales General and Administrative (SG&A) at P&G, and so does overhead. As marketing shifts in-house, there will be less marketing spend going to agency costs and media buying, and more towards overhead costs. The former is a fixed annual cost, and the latter is variable (as it described in its most recent 10-Q).
P&G having more direct control over ad spend in-house also implies that decision-making around spend is more real-time. So the decision-making and the outcomes of marketing spend both become more real-time or immediate, and less pre-planned.
That bodes poorly for upfronts, which is advertising spend allocated for an entire year in advance every summer. It’s not immediate or impending doom — P&G reported marketing spend declined as a percentage of SG&A by 2% in FY Q1 2023. But, P&G is openly communicating less interest.
Death to brand advertising
Perhaps the biggest danger to upfronts being communicated by P&G is that brand advertising is most at risk, because the fundamental value of non-targeted TV advertising is brand advertising.
Now the onus on publishers is to deliver agile solutions in real-time like programmatic ad targeting. Their ad-supported streaming services are going to need to show activation, performance, measurement and ROI. too. Very few are built to optimally solve those solutions, as Simulmedia CEO Dave Morgan wrote recently.
Marketers’ need for agility in deal-terms seems to have been growing since the pandemic. The need is only being accelerated by pressure from the CEO, the CFO and the procurement at companies like P&G.
How is this playing out in the marketplace?
Brian Wieser, Global President of Business Intelligence for GroupM, and his co-host Kate Scott-Dawkins, VP Thought Leadership & Innovation for Essence Global, offered their perspectives on where this all may be headed in last week’s This Week Next Week podcast.
The topic was “Murder Mystery: Who Killed TV?”: GroupM research suggests TV ad spend is down 10% globally. But they are seeing the ad market is not declining on a broader basis and digital seems to be up 10% globally. Wieser’s tongue-in-cheek suggestion is that there is no market decline, but that digital is taking share from TV globally (there were declines in TV spend seen in France and the UK, too).
So the signals are that TV *is* struggling and therefore brand advertising is already starting to feel the market pinch. But, the scatter market in TV advertising has also slowed down, and has impacted legacy media companies and their streaming services (Pluto revenues were down 7% year-over-year), and streamers like Roku, have been impacted.
I concluded on Friday "if we’re looking for a real signal that legacy media advertising revenues are in trouble, we need to wait for the 2023 upfronts." But listening to Wieser and looking at P&G more closely, the emerging market signal seems bigger and broader: brand advertising spend seems to have bought a one-way ticket from linear to digital.
Must-Read Monday AM Articles
* Procter & Gamble, Airbnb, other larger advertisers, see marketing opportunity amid inflation pricing
* I was quoted in this article on YouTube Shorts on TV from Chris Stokel-Walker for MIT Technology Review
* TV networks are losing viewers and advertisers at an alarming rate while streaming services are hemorrhaging billions of dollars.
The Vibe Shift
* The lawsuit that could rewrite the rules of AI copyright
* Disney wants you to focus on revenue and profit instead of streaming subscribers — just not this quarter
The 200 vs. The 10 Million
* N/A
Aggregator 2.0 & Bundles
* N/A
Sports & Streaming
* Netflix recently bid for the streaming rights for the ATP tennis tour for some European countries, including France and the U.K., but dropped out ($ - paywalled)
* A new head of original content at F1 is a signal it is preparing to pour new resources into growing its brand in the entertainment realm
* Roku is launching a new sports streaming hub that will make it easier than ever to access their favorite sporting events.
Creator Economy, Platforms & Transparency
* TikTok launches e-commerce feature in app to compete with Amazon
* YouTube Shorts are coming to your TV — and taking over the platform (A good overview from David Pierce of The Verge)
* Despite becoming a major sales driver in China, live shopping has yet to break through in the West. But some predict that’s about to change. ($ - paywalled)
* TikTok has slashed its worldwide revenue targets for 2022 by at least $2B as the fast-growing platform struggles to meet ambitious goals.
Original Content & “Genre Wars”
* Netflix will make an anthology of Ryan Murphy’s 'Monster' and has ordered two more cycles, along with season two of 'The Watcher.'
* Despite their increasingly important role in suggesting such songs and curating music for shows, music supervisors say they aren’t getting the pay and benefits shared by their unionized peers.
AVOD & Connected TV Marketplace
* Co-viewing majorly undermines CTV’s tightly targeted value proposition
* Why insiders say COO Greg Peters could be Netflix CEO one day ($ - paywalled)
* Peacock makes big play for cord cutters with live TV from all local NBC stations
Other
* The mystery of Biden’s deadlocked FCC
* A partnership between Innovid and The Trade Desk combines the expertise of both parties in personalization and measurement to deliver targeted insights to advertisers running CTV campaigns.