ad:tech: A Bit of Reality To Go With Some Net Kool-Aid – NAB: A Tale of Two Shows


Last week I attended the NAB Show (National Association of Broadcasters) in Las Vegas and Internet advertising conference ad:tech in San Francisco.

More on NAB below. Quick take… big crowds around the digital production systems vendor’s booths and a lot of space in the aisles elsewhere.  Zero length cab lines were a telling sign.

At ad:tech, there were some valuable panels with pragmatic information on advancing Net advertising and on digital media’s role as part of an overall advertising mix. On the other hand, there was atmospheric Internet boosterism. Here are some examples of the Net kool-aid that bumped my curmudgeon meter to 11 (and prompted some metrics in counterpoint – see below for details):

  • A digital media exec said the "Internet will be everything in three years" (I won’t name names on the chance I didn’t write the quote down in my notebook correctly or in context)
  • Cross-platform advertising strategies apparently didn’t exist before digital media (sorry planners of yore who only had TV, radio, newspapers, magazines, direct mail and outdoor to deal with)
  • TV cord-cutting is sweeping the nation
  • Creative is the new content. Or was it content is the new creative? Or was it consumer generated social media (or is it "earned media?") are the new content and creative?

I do acknowledge and celebrate the power of the Internet and digital technology in enabling an astonishing transformative impact on society, let alone content, commerce and advertising business models. The growth and impacts absolutely will continue.  But… despite the world view one sees from San Francisco (where I reside), Manhattan or certain portions of LA – the Internet is not "everything."

Especially as it relates to advertising. 

Let’s take a look at the mix of advertising spend in the US in 2008.  The below chart combines ad spend estimates for non-Net segments from Robert Coen of Magna Global (as of December 2008), estimates for the Internet from the IAB/PWC and an estimate for local cable spending from the NCTA (plus my estimate for satellite/telco local avail spot).

Pie chart of 2008 overall ad spend mix

(click to see larger)

In 2008, the total US ad market was $288 billion and the Internet was 8% of that (a long way from "everything"). Certainly the Internet is doing better than other segments in this challenging economy (even that means only an 11% year over year growth in 2008). But the Net is still generating less ad spend than several other key mediums:

  • Newspapers may be in bad trouble and rapid decline but their ad spend is still 50% bigger than the Net’s
  • All TV has an ad spend three times bigger than the Net, local TV’s alone is 25% bigger
  • Direct Mail’s spend is 2.5 times bigger

While this is a bit of reality, it should be good news for the Internet (and advanced advertising on TV platforms too) – there’s a lot of advertising dollars to migrate from other platforms – Direct Mail dollars for example, by enhancing addressability.

As to cord cutting… despite the anecdotal stories that many are abandoning traditional TV services in favor of broadband delivered video, the evidence just doesn’t support this.  I cover this in detail in my recent newsletter issue "Indexing Cord Cut-ability – How Much TV Do You Lose Going Online-Only?".  In fact, the evidence supports increasing consumption of traditional TV.

And as to social media, it certainly has its role but please stop telling me it’s the end-all be-all. The best insight on social media I heard last week didn’t come from ad:tech, it came from non-crowd-sourced, one-way, old fashioned linear TV…

Twitter – "It’s the digital Macarena" - Joel McHale, host of E!’s "The Soup."

Again, I celebrate the current status and transformative possibilities of the Internet and digital technology.  And, traditional media needs to recognize the changes that are taking place lest they proceed down the music and newspaper arcs (frankly, it seems to me the need to respond to digital tech is pretty well recognized now among "old media"). TV platforms need to become more "Net like" in using digital tech to provide better experiences for viewers and advanced advertising for marketers.

But online and new digital media also needs to recognize its current role in the media mix for both consumers and advertisers – the Internet is not a "one size fits all" for either. Internet content providers and social platforms need to integrate with overall media distribution and marketing plans. 

From the panels at ad:tech, it was clear there are clever Internet participants who are avoiding this "digital tunnel vision" and looking to integrate, as well as adapting best practices from other mediums.  Other Internet participants are keeping the blinders on, providing me an opportunity to be a curmudgeon (and for that I thank them).

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Regarding NAB:

  • Attendance – as reported by Broadcasting and Cable – 83,000, down 20% from 2008.  That’s the official NAB number, it felt lower than that. Two indications of this – end of day cab lines were non-existent – rooms in the swanky hotels were going for less than no-tell motels in years past.
  • It was a tale of two shows.  The South Hall was crowded – where the booths of high-end digital video production vendors were (including Avid (back after missing 2008), Adobe, Autodesk – Apple was again MIA).  The Central and North Halls – TV and radio station vendors mostly – not very many people.
  • Some good panels, but not enough emphasis on how TV stations can leverage the Internet to preserve their threatened revenue models.  But my biggest single takeaway… 
  • The production of TV and feature films is leveraging digital technology to a remarkable degree.  100% digital, using robust networks and server farms feeding video and audio content to sophisticated editing systems with innovative user interfaces.  Granular metadata standards support exchange and manipulation by disparate systems to ultimately produce a single piece of high quality content. Then… when this content is finally delivered to TV viewers, this sophistication and metadata granularity seems to be stripped away, at least with respect to consumer search and discovery, and for advancing the state of the art of advertising.

TV Stations’ Challenges Online – To Start, Local TV Is Mostly Not Local

As the NAB show starts next weekend in Las Vegas (I’ll be there next Monday and Tuesday), one of the top mindshare topics will be how TV stations can best respond to consumer shifts from linear TV to the on-demand, targeted and interactive world of online and digital TV platforms (including VOD, DVR and mobile).

One of the challenges in that shift comes from local TV stations’ current mix of programming.  Local TV is mostly not local.

I reviewed the programming schedules of the four major San Francisco broadcast network stations for this coming Thursday, April 16th – a typical broadcast weekday.  (Three are O&Os (owned and operated by the networks) – KNTV/NBC, KPIX/CBS, KGO/ABC.  The FOX station is KTVU, an affiliate owned by Cox Television, a sibling of MSO Cox Communications.)

Here are the results:

Chart of Bay Area TV stations show splits by time

(click to see larger)

The chart shows, on a time basis for this coming Thursday, the four major Bay Area local TV stations are 24% local.  And almost all of that is local news – 22% of air time.  Local infotainment (locally produced non-news) is 2%.  The rest is programming coming from someone else – 43% from the national network, 26% from syndicators.

Granted, this is looking at programming time, rather than gross ratings points or advertising spend. But, if you’re looking to move your programming to another platform, a key question is how much programming you have to move. Unfortunately for TV stations, much of the local news is repeating the same stories during the day or covering national and world news. (A note – done well, local TV news serves a vital role in the local and regional landscape, especially in times of crisis.)  And, if more than three quarters of your shows are coming from someone else, as content producers shift to an on-demand world of multiple platforms you’re at risk of losing exclusivity or access for a lot of your program day.

The traditional home of syndication is broadcast stations. But there has been an increasing shift in syndicated shows appearing on cable networks too.  And an increasing amount of what has traditionally been considered broadcast network programming moving to cable, such as original drama series.

In many cases, it’s the major media companies that own the broadcast networks that are competing with their own O&O and affiliate stations.  ABC, NBC and FOX are part of corporate families that have robust cable network and syndication portfolios that have been playing their part in shifting viewing from broadcast stations to cable.  And, it’s a long term shift that shows no signs of slowing (it’s been over four years since cable passed broadcast in primetime viewing in all US TV households).

DVRs are another continuing and expanding challenge for local stations. "Later that night" time shifting of primetime hurts two key sources of local ad revenue – primetime local avails and the 10PM/11PM news.  (Actually called “Same Day” ratings by Nielsen – it’s the time shifting that occurs before 3AM local time.  For the November 2008 sweeps Same Day was 47% of all 18-49 time shifting of primetime broadcast based on a Magna Global analysis.)  Not only are the local ads in primetime shows being time shifted and therefore sometimes skipped, much of the "later that night" time shifting of primetime shows is probably being done at the expense of late night local news viewing.

Local TV stations do still get a big share of the US TV advertising spend. Magna Global estimates for 2008 put the ad spend on local broadcast spot at $13.1 billion and national into local broadcast spot at $9.8 billion.  That’s an overall local broadcast spend of $23 billion, one third of the total US TV ad spend of $70 billion.  Add that to cable’s local spot ad revenues of $4.3 billion (NCTA estimated for 2008) and that’s a current $27 billion a year market for locally and regionally directed TV advertising.

How can stations best respond to the shifts in viewing behavior afforded by digital tech?

It starts with TV station’s experienced ad sales organizations, effectively only rivaled in local video by the cable operators’ or third parties that represent local TV inventory. To leverage that sales force, TV stations will need expanded local digital inventory to sell.  Part of that comes from offering news content online as TV stations do now.  One area for improvement here, many TV station sites are still showing small poor quality video – they need high quality players consistent with what the broadcast networks and Hulu offer.  But to avoid a total dependence on news for self-produced content, TV stations should explore an expanded offering of local non-news programming in platforms including online, VOD and mobile (a not inexpensive proposition certainly).  They also will need to invest in getting their sales forces up the learning curve on how to sell the new inventory.

Online, stations need to be able to sell local avail inventory in broadcast networks’ full episode players, rather than getting the revenue splits typically seen now (primarily because the technology to avail split has not been implemented).

For VOD as well, stations will need to be able to sell local avails within broadcast network content.  Stations also need access to selling advanced TV ad capabilities including addressability and interactivity as those are rolled out. Both require working cooperatively with cable, IPTV and satellite operators (not an easy task given they are direct competitors for ad dollars).

In a difficult economy and depressed local ad market, it’s certainly hard for TV stations to invest the time and effort in pursuing new opportunities. But learning curves are steep, business best practices take time to develop and the in-progress changes caused by digital technology are not going away.

NCTA Notes – MSOs Say They’re Not On The Newspaper Arc (yes, but…)

I’m just back from The Cable Show (aka NCTA) in Washington DC.  Much of interest in advanced video for a "quiet news" show, here’s some topline takeaways…

Despite the economy, attendance was actually slightly ahead of last year at around 12,000 (being in DC undoubtedly helped).  On the exhibit floor, most of the big exhibitors and (last year’s) booths were back (with a few notable companies missing). The exhibit hall felt busy, although with less energy via fewer marketing dollars spent by networks on floor activities (no Mad Men cocktail party this year AMC?).

On the panels one of the most prominent messages was that cable CEOs wanted everyone to know they are not on the newspaper business arc.  While I think this is true, I see a "newspaper like" trend in their core business – residential video services.  But, this trend can be slowed or even reversed with the help of advanced TV advertising and services.

(Two other prominent themes were in fact advanced TV advertising, and cable networks working with MSOs to bring a lot more of their shows to broadband – see below for details.)

What’s this "newspaper like" trend?  It’s cable’s declining video services share of US television households. 

Certainly the MSOs are in a very different and much stronger position than newspapers.  Part of this strength comes from the cable operators’ triple play (video, broadband, voice) and other services.  But, residential video services still provide well over half of revenues for cable operators. In 2008, according to the NCTA, 60% of cable’s $86 billion in revenues came from residential video (in 1998 it was 82%).

And, for the last 10 years there’s been a steady decline in the percentage of TV households getting their multichannel TV service from cable.  See the below chart based on data from the NCTA (from SNL Kagan) and Nielsen.  Cable’s share of TV households peaked in 1997-98 at 65.5% and has declined every year since. It was 55.6% at the end of 2008 – an average of one point lost per year.

Chart of cable share of US TV households

(click to see larger)

What’s driving this decline in share? Over most of the past 10 years it was DIRECTV and DISH moving from their initial base (rural and other markets underserved by cable) to compete directly with the major MSOs.  And just as satellite adoption started to slow, here comes the telcos led by Verizon and AT&T.

It could be that cable doesn’t mind losing low revenue subscribers to others.  But while that characterization might be true of the consumers acquired by DISH, it certainly isn’t true of the high RPU subscribers acquired by DIRECTV, Verizon and AT&T.

Advanced TV services and advertising can help MSOs slow or even reverse the loss of TV household market share by improving the viewer experience via:  

  • Deploying better search and discovery via improved program guides
  • Getting more top rated TV shows into VOD by improving the VOD advertising model (see last week’s newsletter for more)
  • Using addressable and interactive advertising in linear, VOD and DVR to change the TV ad experience from something often repetitive, irrelevant and interruptive to something engaging and respectful of consumers’ increasing acculturation to control of media consumption
  • Supplementing TV programming with robust and value adding interactive experiences

Unfortunately for MSOs… telcos and satellite can also improve their viewer experiences using the same techniques.  In some cases they are already ahead of cable (the interactive service deployed by DIRECTV for NFL Sunday Ticket is an example).

And there’s the Internet.  While online video use is still small relative to TV viewing (see this past newsletter for more details), it’s capabilities for interactivity and reporting are already well ahead of TV platforms and advancing faster. 

When low cost and easy to use "over the top" finally gets broadband video to US TVs in scale (as Moore’s Law and the last several decades of digital tech development says it will), MSOs will need to be already "spun up" with their advanced video capabilities.  They need to accelerate development dramatically now, or risk seeing further declines in video services market share or becoming simply a broadband pipe for others to leverage.


Two other prominent themes from The Cable Show panels:

  • Advanced TV advertising was featured prominently on several panels, including Canoe Ventures and technologies ETV and tru2way, particularly on the last general session of the show – "Economics of a New Advertising Era."  David Verklin (CEO Canoe Ventures) said "Community Addressable Messaging" (or CAM – formerly known as "Creative Versioning" – national zone targeting of linear cable network ads based on demographics) would be launched in six weeks covering 48 million homes, with participation from at least two national networks. On the same panel, Steve Burke (COO Comcast) and Landel Hobbs (COO Time Warner Cable) were also promoting Canoe, ETV and tru2way. To address the skepticism regarding advanced TV timetables – Hobbs said "don’t mistake quiet for inactivity" – Burke said "it doesn’t matter why addressable took so long" the question should be are MSOs now committed? He says they are.  
  • Also featured – cable networks moving to broadband in cooperation with operators ("TV Everywhere" for example).  Of note… the Internet has apparently accomplished a new magic trick.  It has turned the cable operators’ deep dislike of carriage fees into affection for the newly named "dual revenue stream content model" (ads plus fees). Likely because these same fees now give MSOs leverage over cable networks’ move to online video.


Copyright 2009 – Bill Niemeyer