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The Death of TV Advertising: A Brief History and Future Expectations
The “death of TV” advertising has been a topic that arises with some regularity for many decades. In my experience, most of the time when these arguments were made, those anticipating that decline was imminent were making aggressive assumptions about one driver or another, or were focusing on the wrong metrics, or they were not accounting for the manner in which advertisers (logically) manage their budgets. To oversimplify, the factors that bring life to or which drive growth or decline for television advertising include:
Creative destruction, or the emergence or disappearance of brands who differentiate themselves from their competitors on the basis of awareness of their brands, or who otherwise use branding to drive performance-based campaigns
A belief that sight, sound and motion-based creative content in a 15 to 30-second format can drive brand-based marketing goals better than alternatives
Consumer reach potential relative to alternative media choices
Any of these three factors could ebbs and flows, but the latter point is the issue I’m most mindful of in looking at the future for the business. For reasons related to the decline of pay TV penetration and the likelihood that the bulk of streaming content will be viewed ad-free on an ongoing basis, I think television’s capacity to satisfy reach objectives in a cost-effective manner (relative to alternatives) faces significant risk.
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Panic at the Cisco: DVR-Driven Ad-Skipping In the 2000s
For some context and history on this topic – and to highlight some reasons why takes on the death of TV advertising were incorrect in the past – I remember when I first showed up in ad-land back in 2003 after a few years on Wall Street, and much of the industry was highly concerned about the growing availability of digital video recorders, such as those produced by TiVo.
At the time, practically everyone working in the business already had or was about to get their own DVR and the dominant view was that all ads would be skipped based on perceptions of personal behaviors, which I was learning did not necessarily map to reality. After looking for passively measured data on the matter I recall seeing research from the likes of Sky, whose relatively mature pool of DVR subscribers in the UK showed that only a small percentage of ads actually were skipped because the bulk of multi-channel TV viewing back then was essentially passive (meaning: the TV was on in the background or a consumer was multi-tasking while watching), or included live content such as news and sports. Compounding these facts, it turned out that even during playback a surprisingly large share of recorded ads were still watched. There was other thoughtful research in that era focusing on how DVRs could help drive stronger relationships between consumers and programming.
The other issue at play was that widespread distribution was far from assured around that time. TiVo was widely available through satellite provider DirecTV but did not have a working relationship with many cable operators, and integration of the technology with set-top boxes was critical in deploying DVRs for most households. Scientific-Atlanta (bought by Cisco around 2005) and Motorola (bought by Google around 2012) were the primary providers, and it took some time before the cable industry placed meaningful orders for hardware with DVR capabilities.
Moreover, only so many people cared enough about avoiding ads to pay one-time hardware or monthly software fees, which didn’t seem likely to go away). Consequently, I was fairly convinced that marketers would still be able to accomplish their objectives around reach and frequency and that TV advertising budgets wouldn’t meaningfully change as a result.
Around the same era, there was also a parallel fear about young viewers shifting away from television in favor of video games (helpfully pointed out regularly in the trade press by companies interested in selling advertising in video games). Putting aside the methodological issues underpinning the data and its reversal a year later, when I realized that very few TV budgets have ever been targeted towards 18-34 year olds (“lucrative” to only the small subset of brands who actually focus on this segment rather than all advertisers), this also seemed like another non-issue.
Marketers’ Shifted To Digital Advertising In The 2010s, But Claims Were Often Reached
Another cycle seemed to start up around 2011-12 around the time when I returned back to a Wall Street role at Pivotal Research. At the time Insider’s Henry Blodget wrote a widely read piece suggesting the TV industry “may be starting to collapse.” To his credit, Blodget published my rebuttal here. In subsequent years there were certainly more pieces focusing on immediate threats of doom and gloom. Efforts from Facebook claiming it could achieve TV network-like reach for video campaigns persuaded many that budgets for television would shift quickly to digital platforms such as Facebook (although I wasn’t so sure and in retrospect, maybe their reach claims shouldn’t have been taken at face value to begin with.).
At the time I recall pointing out (as did many others) that despite claims of the remarkable effectiveness of digital advertising, there was still a lot of fraudulent content being bought, and that perceptions of high performance were often either mirages or were in some manner gamed. Many digital platforms simply focused on targeting the consumers most likely to make a purchase with or without advertising, and then claimed “success,” reporting high performance for brands who very rarely were engaged in proper controlled experiments in order to justify meaningful and sustainable budget shifts.
To be sure, there were many historically TV-focused marketers who allocated a growing share of their TV budgets into digital platforms, but in most cases this was relatively incremental, and where it happened, it mostly reflected a shift of budgets from print, whose goals were better satisfied with digital platforms than with traditional publishers’ legacy media channels, which generally failed to invest enough in online content in order to sustain the budgets they previously held. Equally importantly, whatever shifts went out of TV were more-than-replaced by shifts in from the growing numbers of digital-first marketers who realized that television could help support their own brand-based growth.
Overall, towards the end of the 2010s articles such as this one from 2018 conveying that “cracks” were reflecting the world as I saw it with some accuracy, and I would argue that sentiment among investors and within the industry finally had a better state of balance.
What About the 2020s? Be Wary Of Complacency
So where are we now? Putting aside the present temporary circumstances which I think are negatively skewed because of the industry’s (partially mistaken) perception of current economic conditions, I feel that there may be too much complacency about the future, with too much optimism that the scale of connected TV, FAST services and the roll-out of ad-supported offerings from premium video services are all sources of sustained growth for years to come. Perhaps it’s the natural contrarian in me, but now I see more downside risk than upside potential.
The big issue for me is that pay TV penetration continues to fall at a dramatic pace, and is poised to decline below 50% in the United States probably towards the end next year (down from more like 90% at the beginning of the last decade). This is leading to a severe erosion of the potential for traditional television to satisfy reach-based media goals within any reasonable range of cost (i.e. a marketer can buy the first or second decile of reach in a campaign relatively inexpensively, but each percentage point of reach becomes dramatically more expensive, rising at a much faster rate than CPM inflation).
The rise of streaming and ad-supported options compound this issue. As I’ve pointed out before, there is a strong relationship between share of spend on content and share of viewing. With all of the growth in investment in content in ad-free or ad-light streaming services, that content investment growth will shift viewing into ad-free or ad-light services. As my expectation is that most streaming services will be primarily ad-free, and as those who sell advertising will mostly be constrained in terms of their ad loads by the nature of watching on-demand programming, it will be harder and harder for advertisers who rely on television to satisfy their reach-based goals. 1 These trends have meaningful implications for the reach potential and frequency delivery of TV campaigns in the US in the near-term, and elsewhere over time.
What’s a Marketer To Do?
Thankfully, for those looking to support television, networks will package video-based ad inventory across multiple channels, and this can certainly help a marketer who needs to find something roughly equivalent to what we historically called television. Similarly, YouTube, properties from Meta and TikTok (at least for now) provide video-based ad inventory that, with the right assumptions, can help a marketer satisfy reach and frequency-based goals, albeit with a wide range of quality of video-based content.
However, I’m not so sure that all marketers will look at all forms of video advertising as essentially equal, distinguished only by the price of the ad inventory (i.e. higher CPMs for Super Bowl spots, lower CPMs for cats on skateboards). For this to be true, there will need to be more research conducted on the relative value of these different types of content and general acceptance that at some price they are similar enough to budget as a single line item called “television.” Although individual marketers and measurement vendors have solutions, better ways to measure reach and impact across channels will still be needed for this view to become widespread.
Another approach for marketers will be to reassess whether or not media reach should matter to them vs. alternative KPIs or alternative ways of driving awareness.
As always, “least-bad alternatives” win, and so even if television is less favorable than it once was for marketers, so long as it can be judged to be better than alternatives for purposes of satisfying marketers’ goals, television – however defined – will probably sustain budgets.
Expectations Depend on The Emergence or Disappearance of Categories and Evolving Definition of Television
To be sure, I don’t expect 2023 to be a bad year for television advertising, and it’s even likely that the national TV upfront marketplace in the United States will be relatively normal. The bigger factors driving growth now and in the years immediately ahead probably include whether or not newer advertisers who depend on what TV does well emerge, or if existing large ones who do not presently rely on TV much choose to spend significantly more than they did previously. This creative destruction factor is probably the most important one in determining the near-term health of television. Newer advertisers are probably responsible for at least some of the incremental growth we’ve seen so far in connected TV environments.
However, the bigger question to me relates to whether or not the bulk of advertisers who rely on TV today will take a broader view of the medium to include newer forms of video – user-generated content in particular – alongside traditional, professionally produced forms. The alternative – a sustained definition of “television” as it was historically – is much more likely to experience ongoing decline.
1) Incidentally, this point highlights a mistake that I think many observers of the industry have made over the years when they focus on ratings alone in context of attempting to explain the health of television. Potential reach of television advertising and the reach of individual campaigns is far more important to track, and while these metrics are impacted by ratings they are not solely driven by ratings. This is because marketers do not typically budget for or plan television campaigns based on ratings of programs, but on the GRPs they can buy from packagers of ad inventory, and then of the reach and frequency their campaigns can accomplish across multiple packagers.
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