We are just coming out of the annual ritual that is the TV upfronts. The news seems to be that ratings are down, prices are up and commitments to buy airtime have been brisk. This continues to baffle many who observe the TV ad sales market: how can something that delivers less cost more and sell out.
Wait… I know one other industry where this is somewhat true: the airline industry. Although airline ticket prices are somewhat down when adjusted-for-inflation, it is also undoubtedly true that for a somewhat lower price we get a lot less: no meals, reduced legroom, seat selection, luggage, and so on. Net net, we actually pay more when we subject ourselves to United… I mean, when we choose to fly, especially when you buy amenities that used to be included.
We are witnessing a reinvention of TV content creation for a few years now. It probably started with The Soprano’s on HBO, was accelerated by Netflix’ House of Cards and has now permeated national, cable and internet based “TV”.
I place “TV” in parenthesis, because I am pretty sure Netflix or Amazon do not think of themselves as TV channels but commercial content enterprises (among other things). “TV” is moving very fast in becoming a rich data platform. And this is (predictably) leading to all sorts of new opportunities in distribution, content creation and monetization.
In the past, we could probably simplify the formula of the commercial TV industry as follows: content -> audience -> sales. In other words: TV networks created content which then found an audience, and based on the size of that audience, a network rate-card was developed and airtime deals were negotiated with advertisers. This explains why the upfronts are still focused on “parading” program line-ups and stars to entice advertisers to commit to airtime packages.
But the shift that is happening now is that the formula is changing. I think it now goes like this: data -> audience = content + sales. The understanding of data is driving platforms to develop content for which they have a reasonable expectation of success. It is less “lets create a pilot, throw it in test or onto the network and see if we can develop an audience” and more “audiences that like XYC are likely also interested in ABC” (like Amazon’s recommendation engine). Amazon, HULU, Netflix and some other platforms are particularly good at this, because they are data companies at heart. I expect the likes of the cable providers and phone companies to become good at this as well.
The networks are just catching up, and their challenge is that a lot of the data they could use to develop the same kind of predictive skills are not generated in their own house, but through their distribution partners, somewhat like supermarkets (and Amazon) knowing more about product sales versus the companies that own the brands (who knows more about Coca-Cola sales: Walmart or Coca-Cola?).
One shift that consequently will happen is that ad sales is moving from selling breaks in programs to selling packaged audiences. Programmatic is part of this of course, but it is crude and tainted in its current form. One other TV network challenge: data and audience scientists are strongly present at “not TV” (e.g. Netflix and Amazon). That, in combination with thinner data and ever smaller audiences, should worry network TV a great deal.
One thing that is clear, is that advertisers need to not only get clarity on their data strategy, but also on agency contracting, on their integrated marketing process, on their out-of-house vs. in-house programmatic strategy, on their marketing hire strategy to attract data scientists and analysts, etc. to play in the new media world.
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[Maarten is a featured contributor to MediaPost, this article was originally published here]