TV Ad Dollars Should “Go Digital” Faster Than Forecasts
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- March 1st, 2014
Digital video ads are winning the ROI fight vs. TV
Video is the biggest opportunity in digital advertising; in fact, it’s the single most valuable channel for engaging consumers at scale. Video has become a mainstream activity for users on the web — almost as accessible as the Internet itself:
As accessibility to digital video becomes mainstream, traditional TV viewership is on the decline:
According to my many discussions with major consumer brands, agencies, and advertisers, I’ve heard that TV advertisers are hoping to shift roughly 30% of their $70 billion TV ad budgets to digital video by 2015. That would mean a U.S. market size of $21 billion for digital video ads, up from $6 billion in 2013. This number would represent a 250% growth over 2-3 years. Given that outlook, online video advertising could grow by 100% this year. Big TV spenders are under significant pressure to shift budgets quickly—or lose their valuable marketing dollars to their digital marketing counterparts.
As indicated by consumer behavior patterns and the growth rate of shifting ad budgets, the digital video landscape provides a significant opportunity for impact-meets-efficiency minded marketers. Keep reading to learn why this trend is the case, why it matters to you, and how to navigate the transition.
TV’s “Leaky Bucket”
It’s no surprise that ad agencies—alongside the world’s most influential consumer brands—are shifting budgets from TV to video ads. Ad buying firm Starcom MediaVest moved more than $500 million from TV to digital over the past 12 months.
MasterCard, Mondelez International, and Verizon Wireless, aware of the digital media landscape’s seismic shifts, are all—slowly but steadily—ramping up their video advertising trends.
A recent study from Nielsen and the IAB recommended moving 15% of TV budgets to online video to increase reach at a lower cost. The reality, however, is that this figure—as aggressive as it may seem—should be higher. According to Liza Landsman, CMO of E*Trade, she has reduced TV ad spend from 50% of her total media spend in 2013 to 40% in 2014.
Media buyers and consumer brands need to devote far more to digital video advertising, and here’s why:
TV Ads Miss the Mark
TV advertising is suffering from a major efficiency gap. The value proposition of television advertising is mass-market reach; it’s the ability to reach a wide consumer audience with ad spend. But no advertiser product or service is relevant to ALL consumers. Therefore, the “old school” model fails, and is counterintuitive to the natural behavior of today’s highest value buyers. As Rishi Dave, CMO at Dun and Bradstreet and former executive director of global marketing at Dell, explained in a recent talk, “Today’s consumer is entirely self-directed.”
Millennials, especially, are “cutting the cord” by trimming down their cable watching and/or opting to consume 100% of their media online and on mobile devices. Granted, this viewership population still remains low—one report forecasts this consumer group to represent less than 5% of all digital media audiences—but it is growing fast. Television is still the dominant channel for video consumption, and that trend won’t change overnight, especially for older people. So what is the most important trend to watch?
“Multi-screen viewing is broadening,” explains a report from research firm Altman Vilandrie & Co. The report found that 80% of consumers under age 35 watch TV shows and movies online weekly, with more than a quarter of the under-45 crowd watching weekly on tablets. The percent of consumers watching TV and movies weekly on a smartphone has nearly tripled since 2011, from 5% to 14% this year.
Each device—smartphone, tablet, television, and computer—represents a different media touch point. It’s possible to consolidate experiences across all devices except TV; person-level targeting is not possible with TV ads (we’ll revisit this later).
Consumers want information that is tailored to them, and the cross-device landscape only heightens this demand. They’re open to engaging with ads, but only ones that cater to their specific needs, pain points, and interests. Everything else is just background noise, which is easier than ever to filter. DVR technology makes it easy to fast-forward through commercials. And audiences who are watching TV live? Ads spots provide the perfect opportunity to take a break, hop on the smartphone, or grab a drink. With TV advertising, there is absolutely no way to guarantee that audiences are engaging with your message. TV advertisers are spending money based on a major leap of faith—which is often wrong.
ROI Metrics in Perspective: TV vs. Digital Video Ads
Advertisers are hesitant to ramp up online video advertising budgets due to “inconclusive metrics.” There are very few compare/contrast studies that conclusively prove the benefits of digital video over television advertising. As Nielsen and the IAB point out, a major barrier to greater spending on mobile video is a perceived lack of measurement and reporting. This view presents a major opportunity cost for brand marketers, advertisers, and agencies that are looking to drive efficiency at scale.
The perceived reach of television advertising has a dark side. The fact is, we can’t track who’s watching ads on TV, and there is significant waste from imprecise demographic targeting. In other words, advertisers can’t control who they’re reaching and whether they’re reaching the desired audience at all.
Gross Rating Points (GRP), the standard metric that media buyers use to compare the marketing strengths of advertisers, is misleading for television and here’s why:
A typical GRP for television falls between $10-$20 per 1,000 views. According to this forecast, advertisers are paying $0.01-$0.02 for a theoretical television ad view. But this calculation is exactly that—theoretical. A $0.01-$0.02 cost per view appears efficient on the surface, but dig deeper, and here’s what you’ll find:
Let’s assume that only half of a television show audience actually watches your ads, which is probably an optimistic assumption, since a 2010 Nielsen study indicated that 55% of TV viewers were solely engaged with the screen when commercials came on. With the advent of second screen usage since then, it’s safe to assume that we’ve probably fallen below the 50% threshold.
When half of your audience is skipping ads, you’re actually paying $0.02-$0.04 cents per view.
Now, assume that only 20% of those “actual viewers” are your true target audience; in this case, you’ll be paying $0.10-$0.20 per targeted view (i.e., ads watched by your target audience).
Digital Video Value: Much More Than A View
In our experience at Adknowledge, it’s possible to achieve targeted digital video ad views, at scale, for $0.10 to $0.20 per view. At first glance, this price point seems on par with a television media buy. The fact is, however, that digital ads generate exponentially higher value. That’s because of the “5 Ts” of digital video ads, making them:
Online video ads can be strategically positioned throughout the conversion funnel to help guide audiences towards sales. TV ads, on the other hand, will always remain a step removed, lacking the robust analytics, targeting and tracking capabilities of their digital marketing counterparts.
Justifying a Bigger Budget Switch to Digital Video
Taking all of the above points into consideration, here are the five most compelling reasons for TV advertisers to move more budget to digital:
So why does eMarketer forecast “only” 41% growth for digital video advertising in 2014? Based on feedback I have heard from advertisers, it’s the following limitations that hold advertisers back from shifting video budgets from television to digital media even faster:
- Quality. Web video experiences advertising challenges around content quality and suitability (distributing your 15 second TV ad online is generally not the best digital strategy), ad load, and usage concentrations.
- Brand Safety. Marketers want control over where their videos are shown to ensure publishers are brand-safe.
- Scalability. More than half of digital video views are on YouTube; brands are sometimes hesitant to align their ads with user-generated content. As a result, media buyers are unclear as to where they should spend their eight-figure budgets. If not YouTube, then where else can you find scaled reach?
- Backlash. Brand marketers worry about running ads that annoy their customer bases, for instance, unwelcomed placements of pre-roll ads. (Hint: The solution here is click-to-play ads that users must trigger to view.)
- Fraud. As with display advertising, there is some fraud in digital video advertising, too. What if your video is placed below the fold and audiences aren’t actually seeing it?
The key to overcoming these limitations (and hesitation) is simple: work with trusted partners who 1.) Truly understand the full video landscape, 2.) Have a track record of making and distributing brand videos at scale with a decent ROI, and 3.) Think creatively about how to achieve advertiser goals, then test and measure everything.
Hopefully this article will help to convince advertisers to move budget into digital video advertising faster. The data is certainly compelling and the opportunity is huge. And the risk of doing too little will mean that your competitors will be looking at you in their rear-view mirrors. That could be later this year…
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