TV companies have seen their future, and it looks a lot tougher than their past. The days of the predictable, super-profitable, mass-managed, dual revenue streams from both distribution and advertising are over.
The distribution business, whether carriage fees or retransmission fees, are ‘falling knife’ businesses, heavily tied to subscription cable and satellite subscriptions that continue to drop as streaming and connected TV packages become increasingly available and attractive to consumers — and, many times, are free.
Worse, TV companies’ advertising businesses, historically based on bulk, impression-dominated deals sold to large holding company agencies on a wholesale price/volume basis, face enormous headwinds with their falling audience and viewing numbers and intense competition from both massive, performance-focused digital platforms and sexy streaming services with younger, more attractive demographics and full, digital-like audience targeting and measurement.
So, is it over for TV companies? Absolutely not. Lots of TV will be viewed by lots of people — many on linear — for a long, long time.
However, TV companies’ future will rely increasingly on advertising, with profits driven by expertise in ad yield, not just ad load.
To drive predictable growing profits, TV companies will need to embrace these four shifts in their advertising business:
From quantity to quality
This is a cultural issue. TV companies were built on bulk numbers, but the future isn’t about bulk numbers. TV ads are incredibly effective. They are high quality. They perform very well. TV companies need to embrace positioning their ad businesses around quality, not quantity.
From volume-based ad pricing and packaging to precision and yield pricing
A rerun of a TV show on a cable network is lucky to get a $7 CPM. On Netflix, an ad in the same rerun gets north of a $30 CPM, and that’s before adding any real audience targeting.
TV companies are addicted to high CPMs for their popular live sports, live events and top shows — and throw the rest of their inventory into the package at low CPMs to “dollar average down” the overall deal for agencies and clients.
Kill old-school packaging
The ‘packaging’ culture of TV leads to underpricing both their best inventory and their less-differentiated spots. Buyers of the top stuff are having to take things that they don’t really want, paying way less than the value of what they don’t really want. It happens because of history and because it is easy.
But, as Brad Horowitz of a16z wrote, “The hard thing about hard things is that they are hard.” Building a yield-focused culture and yield-delivering systems won’t come easy, but they will drive growing profits.
From all owned-and-operated only to running a quality audience network
TV companies will increasingly sell inventory that is not on their own properties. Yes, they will become ad networks. With consolidation, it will be harder and harder for small and medium-sized TV companies to maintain the sales organizations, tech and leverage to drive the kinds of ad yields that they need to survive. Thus, one or more of the bigger companies will build networks partnering with their smaller brethren.
Kill garbage-driven audience extension sales
Building real audience networks should not be confused with some of the questionable “audience extension” streaming ad businesses run by many today, where a modern version of packaging is used.
The company sells a portion of its actual inventory but then fills out the order with real-time-bidded inventory purchased off questionable demand-side platforms and supply-side platforms to, once again, ‘dollar average down’ pricing. And much of the programmatic ‘audience extension’ arbitrage is fraudulent or mislabeled impressions, which shouldn’t be too much of a surprise to anyone.
Invest in audience, data, software and science
This future isn’t easy. It will take investment — lots of it, and ongoing. AI is making some of the tech more accessible and capable, which is good, but it is also raising the bar. The TV companies that embrace this future will find profits. Those that don’t, won’t.
What do you think?
This story was first published by MediaPost.com and is republished with the permission of the author.
Dave Morgan, a lawyer by training, is the CEO and founder of Simulmedia. He previously founded and ran both TACODA, Inc, an online advertising company that pioneered behavioural online marketing and was acquired by AOL in 2007 for $275 million, and Real Media, Inc, one of the world’s first ad serving and online ad network companies and a predecessor to 24/7 Real Media (TFSM), which was later sold to WPP for $649 million. Follow him on Twitter @davemorgannyc
