From The Big 3 to OTT: How TV Networks Can Transition to a Digital World
With the big advertising upfront presentations from major media networks in full swing this week, we thought it might be a good idea to highlight some of the changes happening across the media industry, from the largest players in content and distribution, with a focus on ad-supported OTT.
Before the EPG, there was TVG
If you’re of a certain age you can remember a time when the most valuable piece of paper in the household was the TV Guide. It was the source of all knowledge about what was on, when it was on, and where you could find it on an antiquated device called “the dial”. With the advent of remote controls the dial disappeared, replaced by the up/down buttons on the remote but that TV Guide was where you went to decide on just how to spend your TV time.
Schedules were made around the air time of certain programs, with dinner planned in advance of “The Wonderful World of Disney” on Sundays and Thursday nights reserved for “Must See TV” on NBC. If you were a news hound, you needed to be available at 6:30 PM to get the national news from Cronkite on CBS, Brokaw on NBC, or Jennings on ABC. No rebroadcast at 11, and to borrow a phrase from Cronkite, “That’s the way it is”.
We now refer to these broadcast networks as “linear” in nature since their programming followed a specific schedule, changing on the half-hour or hour, memorialized in the TV Guide. As cable grew from a handful of networks that met niche programming needs, from animal and nature programs to collegiate sports into the 500+ cable channels available today, networks' advertising business flourished as audiences grew. Using the same Nielsen currency that gave the big 3 networks their heft, the cable nets became dominant as the mass audiences of the 3 letter networks waned.
This ultimately was a lateral shift of dollars from a concentrated set of incumbents to a broader set of disruptors, with a somewhat muted effect on the big 3 broadcasters as the TV advertising market continued to expand along with the outlets, leaving plenty for almost everyone to feast upon.
It stands to reason we all should have seen the next revolution coming, and as far back as the turn of the millennia many people claimed that Internet-based content would displace the “professional grade” programming that the cable nets and broadcasters provided. To some degree this was true, the instrument of distribution did eventually eat their lunch, but it turns out that audiences love serialized dramatic content that is well written, acted, and produced a bit more than mash-ups of kittens.
Also, it turns out that audiences like time shifting their content but remain enamored with seeing the latest shows when they are new, or at least not too far past their air date. This brings us back around to “linear” programming, content delivered on a schedule, same Bat-time, same Bat-channel. (Google it.)
And Then Came TVE & OTT
What began life labeled as TV Everywhere, or the ability to activate your multichannel cable subscription on say, a smart phone or tablet, morphed rapidly into stand-alone services from cable operators and content aggregators that deliver that same TV Guide x-y axis grid of programming to consumers through small, cheap, effective devices lovingly known today as Connected TV.
And while Netflix, Amazon Prime, Hulu and even Vudu from the good folks at Walmart have an extraordinary library of on-demand content for viewing, folks still seem to want to sit down on their couch at a certain time to stay current with culture. SNL, Shark Week, Monday/Thursday/Friday Night Football, it’s all happening at a time and place, and you’re not going to be very cool at work or school the next day if you missed it.
So with the unforced migration of audiences from the cable box to Connected TV, these programmers have been given a gift from heaven, but it looks a bit like a Trojan Horse.
How so? Let’s investigate.
Networks were fat, dumb, and happy collecting massive subscriber fees from MVPDs and augmenting their cash pile with national advertising CPMs for 12-14 minutes per hour against huge audiences. This 100 billion dollar business was built on the expectation that only TV gave you the scale you needed to genuinely build brand awareness and consideration. Limit your TV spending at your own peril many CMOs were warned, because you lack any other way to get the reach and message frequency you need. But today those audiences are slipping away, with more than 1M households leaving cable entirely in 2018 in favor of smaller OTT packages (insert chuckle here) and newly forming households aren’t a certainty to ever get cable TV service.
So the content providers are now selling their signal to the new virtual MVPDs, folks like Hulu, SlingTV, and DirecTV Now and making a go of it on OTT. Most if not all of them had fledgling digital businesses that did some good tests learning on the web and in-branded apps, but for the most part they are struggling with how to replace their missing “TV audience” advertising revenue with their new “OTT audience” advertising revenue, which is somewhat daft.
The common denominator is audience, sometimes called “eyeballs” but it is sort of gross to think about disconnected optic nerve dangling orbs watching TV when really it’s supposed to be an analog for “people” so from now on let’s never use that phrase again. OK? Let’s just call them people.
So the audience hasn’t disappeared, in fact consumption has gone up. So why are content owners missing the trend? For one thing, they are living in a less fuzzy world of measurement which is good, unless you’ve become accustomed to panel based research for viewership ratings that permits a “cost-per-point” media economy to thrive. If you have, it’s tricky to now move to a deterministic audience model where each unique viewer can be measured and the total audience composition and audience behavioral dimensions can be accurately determined using commonly available tools. This, it turns out, means that the 18-25 year old females that the networks suggested just love their programs, week in and week out, may turn out to also be 55+ men seeking guilty pleasure programming.
But the silver lining here for content rights owners is that digital tools will allow you to derive optimal advertising yield for whatever audience you are bringing to the programming, delivering targeted ads into the unicast stream based on that viewers particular characteristics. It may well be that the pharmaceutical ad for 55+ men at risk of heart attack or stroke is better money than the national spot for TGI Friday’s. Of course, you need to do some work to get to this level of CPM support, including managing a DMP (sorry, this month it’s become known that the technology formerly known as a Data Management Platform has officially declared that it wants to be known as a “CMP” because “Customer Management Platform” is much cooler and sounds less like “dump”) so you can understand your viewers on an individual level and use 3rd-party data matching through partners like LiveRamp to really deliver the most relevant messages for advertisers.
The greatest gift of all to these programmers is the advent of programmatic demand, essentially the automation of media buying that has occurred over the past 5 years or so that is becoming the baseline standard for all digital advertising including OTT. For these content companies this means they can gradually transition from direct sales to agencies and brands to a blend of direct and indirect sales of their media inventory and importantly, to be able to sell based on an accepted standard who is really viewing their content, not an extrapolation of who is likely watching based on the context or type of programming. So that same network that had 55+ males as a proportion of their audience they never really acknowledged can now sell that part of the audience to the helpful pharma folks while the 18-25 female segment of the audience can get enough encouragement to finally order that mess of a Tequilatini at TGI Friday’s they probably should be avoiding.
This weeks upfront presentations already look nothing like they did even a few years ago: less celebrity driven, less about the shows, much more about the audience and the data that can be applied, and the platforms where these shows are consumed. That’s likely a good thing as advertisers are getting smarter every day and insourcing a lot of programmatic tools and processes to have a better handle on their spend and to manage their own customer data in a way they gives them the greatest benefit.
Television remains best as a shared experience, and linear scheduled viewing with family and friends isn’t going away. What is going away is wrestling with your older brother over the TV Guide to decide what to watch next.