Streaming advertising’s tipping point: Viewership has shifted and ad dollars are expected to follow

The streaming wars and the coronavirus crisis have led to increases in streaming viewership. Those increases and the leveling of the streaming playing field between TV networks and digital platforms will lead to streaming accounting for a larger slice of the ad dollars committed in this year’s annual upfront negotiations compared to previous years, according to executives at advertising agencies and TV networks.

“This year is a tipping point where we’ll see a more significant shift in spend to [streaming],” said one agency executive. This executive estimated that 25% to 30% of dollars committed in the upfront market will go to streaming, compared to 10% to 20% in prior years.

The surge in streaming viewership since March has contributed to that shift. So has the maturation of the streaming ad market as platforms like Roku and YouTube step up their game against traditional TV by, for example, offering incremental reach guarantees and cordoning off their most prized inventory. Meanwhile, TV networks have enhanced their streaming sales pitches by acquiring ad-supported streaming services like Hulu, Pluto TV and Tubi that give them access to audiences of cord-cutters. 

“They are definitely now all in the same market and are now competing with one another straight up,” said Catherine Sullivan, chief investment officer for North America at Omnicom Media Group.

Last year’s TV upfront negotiations appear to have marked a milestone toward this tipping point. TV networks were already sell their streaming inventory, such as ads inserted within shows that people can stream through their connected TV apps, mobile apps and sites, as part of upfront packages. But that streaming inventory was usually seen as complementary role to the networks’ linear inventory and effectively a safety net for networks to ensure advertisers reach enough viewers. Historically, the networks’ have sold their streaming inventory at a higher price than their linear inventory, so advertisers have been less keen to allocate their dollars toward it. That changed last year as networks lowered the price of their streaming inventory to be more in line with their linear rates. 

“Networks were willing to strike more favorable deals [with advertisers] on digital. But the digital inventory from these partners was still more expensive than linear on the Nielsen age-sex currency of TV,” said a second agency executive.

Out from TV’s shadow

TV network executives acknowledged that they have had to enhance their sales pitches associated with streaming in order to hang on to ad dollars as they shed linear viewers. “There has to be a natural reduction of dollars on the linear side just because audiences are shifting. Even in the Covid environment, overall linear ratings are down 10% to 12%,” said a TV network executive.

Similarly, brand advertisers have been pressed to spend more money on streaming inventory in order to reach the audiences that are increasingly difficult to get in front of on traditional TV. “Without streaming, it’s very difficult for advertisers to get the reach they had a few years ago, so they have to adopt streaming,” said Catherine Warburton, chief investment officer at 360i. 

In addition to new and enhanced reach, streaming also provides advertisers opportunities to reduce waste. And the TV networks and streaming platforms are pouncing on that point in their sales pitches this year.

TV network groups, such as Disney, NBCUniversal and ViacomCBS, have each taken steps to connect the inventory across their connected TV apps and other digital properties so that an advertiser can manage how often an individual viewer is exposed to its campaign across that streaming footprint. 

Meanwhile, Roku and YouTube are touting their abilities to deliver audiences that advertisers cannot find on traditional TV. YouTube, which is selling its connected TV inventory as a standalone option in this year’s upfront, has told advertisers that two-thirds of its viewership is incremental to TV viewership. “What we started to do last year, and leaned into more aggressively this year, is the emphasis on the TV screen,” said Tara Walpert Levy, vp of agency and brand solutions at Google.

Roku is guaranteeing that upfront advertisers will only pay for ads that are shown to viewers who were not exposed to their ads running on linear TV. “Since the day we started the advertising business, we have always been preparing for this moment, for helping brands out of linear and into [streaming],” said Alison Levin, vp of ad sales at Roku.

Upfronts upended

As the playing field levels between the TV companies and the streaming platforms, the hierarchy for upfront negotiations has the potential to be upended. 

Traditionally, advertisers and agencies strike deals with TV networks first — usually in July and August — and then the streaming platforms like Hulu, YouTube and Roku once the network negotiations are over. But this year, some advertisers plan to wait until the fourth quarter to sign deals with the networks so the advertisers can have a better sense of their own ad budgets and the networks’ programming schedules, given TV upfront deals’ historically rigid cancelation options. That has created an opportunity for the platforms offering more flexible terms to move earlier into the negotiating window.

While TV networks typically require advertisers to provide 60 days’ notice before canceling a percentage of their quarterly commitments, Roku will only require advertisers give 14 days’ notice and allow advertisers to cancel 100% of their commitments at that time. That makes it easier for advertisers to commit to spend money on Roku because they are not as locked into their deals.

“We’ll look to probably do some of those deals at, if not earlier, than 2020-21 broadcast deals primarily because it is flexible,” said Stacey Stewart, evp and managing partner of integrated investment at UM Worldwide.