At the May 2016 TV upfronts, the annual mating ritual between advertisers and television networks, agency and brand executives received an inside peek at broadcast and cable’s 2016–17 programming. They also had a chance to see the stars. Tonight Show host Jimmy Fallon opened NBC’s presentation. ABC’s Jimmy Kimmel, in what is becoming an upfronts tradition, did a set for advertisers and agencies skewering the TV industry, and Jennifer Lopez performed on behalf of Telemundo. And then there were the parties. Who among us would miss the opportunity to see Nicki Minaj perform at an event hosted by Cartoon Network’s Adult Swim?
At first glance, the upfronts were not so different than they were back in the 1960s, when they first began. Yet a closer look reveals signs that the networks’ decades-long party may be coming to an end. The main purpose of the frenetic week of presentations is to set the stage for the negotiating of TV ad time. But a little more than 10 years after the birth of YouTube, advertising money is finally starting to dribble out of so-called linear TV to follow the consumer to the online world — where a wildly popular, but much more fragmented, set of options awaits.
The Interactive Advertising Bureau (IAB), in a study exquisitely timed for release before the upfronts, said in early May that according to a recent survey of advertisers, online video budgets had doubled in the last few years. The IAB reported that 72 percent of advertisers say this money was coming out of TV ad budgets. Although that makes sense, it also represents a major shift in mind-set. Even though online video budgets have been slowly growing, in the past the money was more likely to be taken from other online ad formats than from TV.
One deal struck in May of this year between Google’s YouTube and Magna Global — a media company owned by Interpublic Group — highlighted the trend. Magna said it would spend US$250 million in advertising from October 2016 through December 2017 in Google Preferred, the name for premium ad inventory on YouTube. The ad deal, the largest ever on YouTube, was noteworthy not just for its size but, again, for the fact the money was coming out of TV. Magna president David Cohen, in an article in the Wall Street Journal, was forthright about stating his displeasure for the TV industry’s continuing success at getting advertisers to pay more for less as the amount of people watching linear TV declines.
It’s no wonder that one widely circulated quip from Jimmy Kimmel’s upfront performance was: “2016 is still an exciting time in broadcast television, in the same way that 1937 was an exciting time to be on the Hindenburg.”
It’s not that dire for broadcast or cable TV yet, as the still-increasing rates for Super Bowl advertising make clear. But the shift is finally happening, albeit years after it’s been clear that consumers love on-demand online video. Why the lag?
It’s not that dire for broadcast or cable TV yet, but the shift is finally happening.
Compared with the Wild West of online video content, in which ads can be bought on thousands upon thousands of sites, buying TV is relatively easy. Even when cable vastly expanded the number of advertising options, there were still a relative handful of TV companies to do business with. And consolidation over the years — as many TV networks came to own multiple channels — made the job easier. One could argue that this consolidation also led to a consolidation of philosophy: The fewer media companies involved in the TV business, the more likely that the TV business would be conducted in the exact same way it had been for decades. The basic unit for measuring how many people actually see a TV ad is still the gross rating points (GRPs), which correlates to how many people are watching the show the ad runs in. When advertisers set out to buy TV time, they make their plans according to how many GRPs they want to buy.
This has led to an interesting twist on the old rules of supply and demand. Even as the audience for individual TV programs has dwindled, the industry has had time on its side. If an advertiser wanted to buy 50 GRPs on broadcast TV decades ago, when the TV audience had few viewing options, it wouldn’t have to buy that much time to reach that number. Now, it takes many, many more ads to accrue 50 GRPs, because megahit programs barely exist; viewers — and GRPs — are spread out among dozens of networks. And with a finite amount of ad time available, this put pressure on the supply of TV ad slots, so prices for commercials have generally continued to rise even as audiences have shrunk appreciably.
Although online is getting easier to buy as ad sellers aggregate impressions across the Internet, it is still an industry fraught with disagreements. One of the biggest controversies right now lies around measurement of viewability: whether an online video ad is actually seen. Does spending a handful of seconds on a 30-second video constitute a view? Is it a view when the user only sees part of the screen the video is being played in? Whatever your thoughts may be, the answer to both these questions — among some influential people in the online industry — is yes. No wonder the skittishness about the online video marketplace.
But as video ad money starts to move, incrementally, from TV to online, those controversies don’t change what everyone (in particular TV executives) knows: People just don’t watch TV the way they used to. According to statistics from Publicis-owned media agency Zenith Optimedia, viewing of linear TV began to decline in the U.S. in 2014, and it estimated 2015 online video ad spending at $8.5 billion. That still pales in comparison to the estimated $71.1 billion in U.S. ad revenue the TV industry saw last year, but the shift is upon us, nonetheless. Fast-forward a few years, and the picture will become even clearer.