Monday AM Briefing: Why Connected TV Advertising May Be "In For A World Of Trouble"
There was recently a terrific podcast interview in Brian Morrissey’s The Rebooting Show with Joe Marchese, executive chairman of Human Ventures and longtime media executive.
Marchese told Morrissey: “In a world where we have dynamic targeting and we know what each household is watching, the advertising experience is actually worse. How did we get worse at advertising in a Connected TV environment than we were on broadcast television 40 years ago?”
Much of the podcast is devoted to his answers to that question. He predicted, “CTV will get better when it gets back to context and sponsorship of programs.”
Ultimately what he is describing is how CTV is trying to serve two masters: the 200 or so “media-retail cartel” advertisers that supply nearly 90% of U.S. network television revenue, according to Interactive Advertising Bureau Research, and the 10 million or so digital advertisers that have bought from Google and Meta over the past decade. Marchese believes “CTV is in for a world of trouble" unless it figures out how to deliver sponsorships and integrated marketing deals.
Meaning, brand advertising still matters more than data-driven advertising. That point scores a direct hit at the tension between Smart TVs and the “walled gardens” of legacy media streaming services: is it the ability to provide both scale and targeting that ultimately wins out in CTV? [1]
Or is it that, as Marchese says, “What brands really want to pay for is culture creation and culture influence”, and legacy media streaming services deliver that better than Smart TVs, even if at a smaller scale in streaming?
It’s a smart, brand-focused lens on the challenges in CTV advertising that I had not encountered or read before. It is worth diving into briefly because it seems to predict a bearish future for Connected TV devices where I have been bullish.
Advantage: Connected TV Devices
Smart TVs seem best positioned to solve for both delivering the scale linear advertisers seek and precision targeting for e-commerce advertisers: manufacturers like Roku and Amazon have been building out advanced solutions, and Samsung has the global scale to be a player in advertising itself (an estimated 12.7% of the global connected TV device installed base as of 2020).
That creates tension with legacy media companies, which have suffered from a “walled garden problem” of limited libraries and audiences locked into particular services, so publishers are unable to understand consumer preferences holistically. In turn, the data legacy media publishers intend to sell to advertisers suffers from the same limitations. So the future of data-driven advertising favors connected TV devices because they control the last mile to the consumer, and therefore accumulate more data.
This tension has played out most obviously in sports, as I argued in The Tiger Woods Comeback Story vs. Streaming Bundles:
Smart TVs control the last mile to the consumer, and they can extract rent for better distribution. But there is a lot of friction that still exists between the streaming consumer and the streaming sports broadcast that even the Disney bundle UX fails to solve within Hulu.
Less friction will create more value for streamers - more consumers and happier advertisers - but more friction can be more expensive to streamers with billions of dollars to recoup each year from rights deals. The obvious solution for less friction starts with making deals with Connected TV manufacturers to make sports events one click away for users.
And, if Connected TV manufacturers can bundle multiple sports events across multiple services by making them one click away, then they may be a better bundle for sports viewing, specifically, than just the Disney+ bundle with Hulu and ESPN+.
Also, Connected TV devices simply have more data on the consumer than a streaming service. As I wrote in “The Question Plaguing Connected TV: Who’s Watching?”, this issue played out in recent negotiations between Roku, Amazon, WarnerMedia and NBCUniversal. The CTV companies have insight into how ads perform on legacy media streaming services (and Netflix) through advertising inventory-sharing requirements (up to 30%), whereas those services will be in the dark about how ads perform on CTV ad-supported services. It’s an imbalance that favors CTV devices.
Advantage: Legacy Media?
I really like Marchese’s question: “What brands really want to pay for is culture creation and culture influence. How do you price culture creation and culture influence?”
It is another, perhaps more diplomatic, way of saying that Connected TV devices are not in the business of culture. Legacy media companies and Netflix are, but Connected TV devices are not. Those devices that offer original content on their own free streaming services could be argued to be in the business of culture, but again, their competitive advantage is data-driven advertising from owning the last mile to the consumer.
I think CTV devices embody Marchese’s counterpoint about the inability of the ad marketplace to figure out “how to do these sponsorships and integrated marketing deals”. Meaning, CTV ad-supported services are creating content against which they sells ads and retains 100% of the revenues. But, they are not prioritizing the delivery of context and sponsorship-related advertising.
Other than Instagram’s targeting of advertising to interests and Google’s targeting of advertising to demand, Marchese believes “Internet advertising has never really been better than programmed cultural advertising.”
So, legacy media’s “walled gardens” may have disadvantages at scale. But, if “brands really want to pay for culture creation and culture influence” and “brands aren’t built by direct-targeting”, then Smart TVs are taking “the worst parts of digital advertising” and bringing them to the home television. The better bets for advertisers may be legacy media advertising solutions.
Netflix as the solution?
In sum, through Marchese’s brand-building lens, the promise of the connected TV (CTV) marketplace to deliver branding campaigns for the 200 retail cartel advertisers, and performance marketing campaigns for 10MM e-commerce advertisers has somehow made advertising “worse”. If advertising is ultimately about culture creation and culture influence, CTV advertising delivers neither: the 10MM advertisers “don’t have the budget to produce something with creative quality”.
I argued in Netflix’s Best Advertising Bet Won’t Require Software that a “less-is-more solution” will work for Netflix”. Specifically, it would be “a return to the legacy network TV model of ‘“non-targeted, highly limited, national advertising across very few breaks’” - effectively, brands paying for contextual attachment to Netflix’s culture creation and culture influence.
The idea for the essay came from focusing on Netflix’s weaknesses in advertising - specifically, an institutional unfamiliarity with “make-goods”, which are what happens when the actual impressions an ad achieves fall short of what the advertiser has paid for. But Marchese’s point is that this model would work better because it will allow advertisers to deliver culture creation and culture influence with content that delivers cultural influence at scale. That makes sense.
But then that leaves us with the head-scratcher of a question: why is Netflix betting on Microsoft and Xandr, its programmatic platform? And why is it trying to compete with Smart TVs in data-driven advertising?
It feels like we're still missing key details about this partnership.
Footnotes
[1] I wrote about the challenges of the CTV marketplace in three recent essays:
Netflix, Disney+ & HBO Max face the question, "What constitutes an impression?" (for PARQOR Members)
Don't count Nielsen out of the future for Connected TV (for PARQOR Members), and
The Question Plaguing Connected TV: Who’s Watching? (for The Information)
Must-Read Monday AM Articles
[Author's Note: I have hyperlinked certain themes to specific past mailings where I first defined and discussed them]
* The Wall Street Journal spoke to advertisers “already plotting how to take advantage of” Netflix's new ad tier.
The Vibe Shift
* The biggest competition for PlayStation Plus “isn’t Xbox Game Pass”
* ClassDojo raised $125MM for a virtual world that is “intended to be a closed, safe environment in which kids can build and hang out after school—all while participating in activities intended to subtly build valuable soft skills like creativity, collaboration and sportsmanship”
* Variety’s Cynthia Littleton writes, “the sentiment has spread in the creative community like a California wildfire that the deal-making structures implemented over the past decade by the streaming giants are costing them the chance to build precious ownership stakes in the TV shows and movies they make.”
* Variety also profiled “TV’s great talent economic divide”, highlighting how “There’s a much deeper and steeper sliding scale between No. 1 or 2 on the call sheet and 3, 4 and 5”
* An interesting article on how the NBA is using virtual reality to help train NBA referees
The 200 vs. The 10 Million
* t Jimmy Pitaro, chairman of ESPN and Disney’s sports-content operations, said that ESPN’s flagship cable network was likely to remain intact, even as more of its audience gravitates to streaming video and direct-to-consumer outlets.
Aggregator 2.0 & Bundles
* Recent hires indicate that Netflix is moving into live service games
Sports & Streaming
* Sports Business Journal’s John Ourand reports “Baseball’s midseason report card on its new streaming deals seems to give higher grades to Peacock’s performance than that of AppleTV+.”
* The NFL confirmed it is launching NFL+, which “will provide fans access to live local and national NFL games on mobile devices, live out-of-market preseason games across all devices, live local and national audio for every game, NFL Network shows on demand, NFL Films archives and more”
* The Drum has a good piece on how media buyers are planning for a winter World Cup
* As more traditional TV viewers move to streaming venues, TV networks and their advertisers are relying more heavily on marquee live events like the All-Star Game, other special match-ups, and post-season play to reach the viewers they might once have connected with during regular TV primetime.
* WWE’s Chairman and CEO Vince McMahon stepped down after it was reported ($ - paywalled) that he had paid $12MM in “hush money to four women”
Creator Economy, Platforms & Transparency
* The Information’s Kaya Kurieff writes “A riotous field of competitors is battling it out for the same limited attention spans, leading to questions about whether TikTok can do for creators what it and other competing platforms have long promised” ($ - paywalled)
* YouTube asked five industry experts top questions from YouTube content creators “about what makes content good”. It also released “the findings of the latest Oxford Economics study on the state of the creator economy, which illustrates just how profound of an impact our creators are having on American life.”
* How does Shopping work on YouTube? A four-minute AMA with YouTube’s Chief Business Officer Robert Kyncl
* Culture Genesis makes direct ad sales to brands and agencies on YouTube, offering more cost effective buys for shops that are looking to target diverse consumers. This direct ad purchasing system is usually reserved for publishers like BuzzFeed, Complex and Vice.
* E-commerce platform Shopify announced a new partnership with YouTube for content creators to sell their merchandise via the video platform.
* Content creators increasingly value accounts on chat apps, like Geneva, Discord and Telegram, where they can connect privately and directly with people they know are listening
Original Content & “Genre Wars”
* I really liked this argument from Protocol’s Janko Roettgers that the streaming industry’s new paradigm is “content first” is “trapping them in illogical loops caused by business disputes” instead of giving people easier access to their favorite shows
* Hulu’s output deals with Neon, IFC, and Magnolia, as well as its in-house relationship with Searchlight, “keeps the distributors in business”.
* The future of HBO Max’s European originals team “has appeared bleak ever since it emerged Warner Bros Discovery was stopping production in the continent”, and now “almost all European shows in development have now been scrapped”.
AVOD & Connected TV Marketplace
* While broadcast channels like CBS or NBC are required to air candidates’ ads, even if they are controversial or false, streaming services are not. (free - registration required)
* Ampere Analysis found that Apple TV+ and Paramount+ are the most widely chosen platforms for streaming customers who move from one subscription service and commit to another contract within 60 days
* For 18 of the past 24 months, subscribers have been choosing Hulu over Disney+, according to a study from the entertainment analysis firm Antenna.
* AT&T CEO John Stankey told investors that they’ll consider bundling HBO Max again, and “when it’s right for us to put [HBO Max] up in the front line and do that, we’ll continue to do that.”
Other
* Americans age 50 and over accounted for 39% of streaming watch time as of May
* Meta's share of global net online advertising revenue is forecasted to decline for the first time in 2022 ($ - paywalled)
* The Entertainment Strategy Guy wrote about his methodology and why “If a film or TV show misses out on all of our ratings sources—or does poorly on the metrics we do have—we know it’s a miss or a flop or a dud or a bomb”
* Amazon is launching a significant overhaul to the streaming service’s interface, with a modern look and feel, dynamic visuals, a new live TV hub, improved search and more.
* Short attention spans and even shorter video formats are demanding that Bollywood composers create music differently