How TV networks are managing their ad businesses’ migration to connected TV

In the third quarter of 2018, TV networks, including Turner, NBCUniversal and Discovery, continued to see their advertising revenues grow despite their shrinking linear TV audiences. The trend may seem counterintuitive but indicates how TV networks have managed, thus far, to migrate their businesses to digital where their audiences have moved.

At the center of the TV-digital convergence is the continued rise of people streaming live and on-demand TV shows through their connected TVs. “It’s basically filling the gap,” said Donna Speciale, president of ad sales at Turner.

In addition to adding back to the marketplace impressions that TV networks are losing on linear, connected TV is introducing new opportunities for TV networks to make their inventory available to advertisers. They can carve up their audiences into specific segments for advertisers to target, and they can outsource sales to programmatic platforms in addition to or in lieu of direct sales. However, in seizing these newer opportunities in connected TV, TV networks have to contend with measurement constraints and concerns about empowering tech platforms to supplant them.

“The biggest challenge that the OTT ad industry faces in monetizing this inventory is measurement,” said Dave Morgan, CEO of Simulmedia, which specializes in advanced TV advertising.

“The issue is we’re kind of trying to change the landscape while being adhered to historical norms,” said Speciale.

Nielsen ratings are the currency by which TV advertising is transacted, but in the connected TV environment, Nielsen demographic measurement only works on Roku and Hulu, said Neil Smith, gm of FreeWheel Markets, the division within Comcast’s FreeWheel ad tech arm that specializes in automating TV and digital video sales.

Additionally, digital buyers often require viewability measurement for digital campaigns. That’s fine in traditional digital environments, like video ads running on the web or even platforms like Facebook and YouTube. But viewability measurement isn’t something that’s done on OTT. “It’s not technically possible,” said Smith. As a result, an advertiser requiring viewability measurement wouldn’t buy OTT because it wouldn’t check that box, he said.

However, measurement is not the only challenge that TV networks face in managing their connected TV ad sales. They also have to address the myriad ways by which this inventory is being made available to advertisers.

To date, the connected TV sales model generally resembles the traditional TV sales model. Turner, for example, does not separate its connected TV inventory from its linear TV inventory, Speciale said. That unified approach on the sales side is reinforced by its reflection on the buying side. Advertisers are largely buying networks’ connected TV directly because it is often cheaper than going through a programmatic platform that would attach technology fees and because ad buyers are still ironing out who should handle these buys.

But that will change as companies like Comcast’s ad tech arm FreeWheel and video-centric supply-side platform SpotX pool together connected TV inventory from multiple publishers and make it available to automated ad-buying platforms like The Trade Desk and Dataxu. Similarly, connected TV platforms like Roku and Amazon’s Fire TV are buying TV networks’ connected TV inventory to resell to advertisers.

“What you’re seeing in the platform-ization or the network-ification of OTT is the first shot in what will now be a fight over the platform-ization of TV advertising,” said Morgan.

TV networks like AT&T’s Turner and Comcast’s NBCUniversal are well positioned for this fight because they are owned by the companies that also own the platforms, Xandr and FreeWheel, respectively, that are looking to digitize traditional TV advertising, which can then be applied to connected TV as well. Turner is already working with Xandr to test how it can deliver different ads from the same advertiser tailored to specific segments of DirecTV viewers, Speciale said.

TV networks are also exploring opportunities to use the connected TV platforms to bolster their direct sales. Turner and Viacom are testing out Roku’s Audience Marketplace. Announced in June 2018, Roku’s Audience Marketplace enables Roku app publishers to sell their Roku inventory using the connected TV platform’s first-party data. “It’s a great opportunity to generate incremental demand against our supply,” said John Halley, evp and COO of Viacom Ad Solutions.

In addition to the Roku test, Viacom sells its connected TV inventory directly to advertisers on a reserved basis with demographic guarantees as well as through programmatic private marketplaces and sometimes as part of a “convergent deal” that combines linear TV and digital video, though “that’s the smallest piece of it,” Halley said.

As TV networks’ inventory becomes available through so many different means, the ad servers that TV networks use to manage who gets to buy their inventory become even more important. “All this stuff is going to have be managed. The supply pool is not perfectly established. Over time all of that will improve. A lot of the rules that we deploy are set up in an ad server, and it’s fairly straightforward,” said Halley.

Over the past year, A&E Networks has worked with Comcast’s FreeWheel ad server to analyze each impression that becomes available and run a unilateral auction so that the ad server can determine who should win the impression based on the value delivered back to A&E Networks, according to Jason DeMarco, vp of programmatic and audience solutions at A&E Networks. This work is especially important because of how widely available the company has made its connected TV inventory. A&E Networks sells its connected TV inventory through various programmatic marketplaces and resellers, including Amazon and Roku.

A&E Networks has made its connected TV inventory so widely available in an effort to get ahead of the consolidation in the TV market as companies like Comcast, AT&T and Disney assemble media monoliths to fend off tech giants like Google and Amazon. Those larger companies will position themselves to advertisers as one-stop shops and likely lessen the need for advertisers to buy directly from A&E Networks to satisfy reach demands.

“We become wholesalers, not full-blown production companies and content creators only, but we diversify the way in which we sell inventory to these larger entities that are going to be able to add incremental value in targeting and data and reporting,” said DeMarco.

A&E Networks has been savvy in ensuring the programmatic marketplaces and resellers do add incremental value. By enforcing its rate card for direct sales as the baseline for programmatic sales, the network’s programmatic CPMs are 10-20 percent higher than its rate card price, DeMarco said. A&E Networks’ linear TV inventory can often be had for $10 to $12 per 1,000 impressions, whereas its connected TV CPM tends to be in the low $20s, he said.

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