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OTT New-Entrants at Risk of Disruption by TV Establishment says GroupM

Tim Cross  01 November, 2018

Group MThere are no new signs of life for linear television, but that doesn’t mean its dying either says GroupM in its ‘State of Video 2018‘ report released today. The report strikes a similar tone to last year’s, finding hope in some of the new technologies and alliances used by traditional TV players, but also warning that progress is too slow in some key ares.

Disruptors May be Disrupted
Audiences aren’t really cord-cutting, rather they’re building highly personalised bundles of OTT and digital video and TV services says GroupM, and Amazon and Netflix look set to be cornerstones of these “future bundles”. While the report acknowledges it’s hard to calculate their market share, it claims with their extremely high spending, both are capable of “moving any market or transaction they enter, if they wish.”

However GroupM believes these disruptors could themselves be disrupted as the traditional players rally in response. They see both Disney’s acquisition of Fox and Comcast’s acquisition of Sky as having the potential to create competitors to Amazon and Netflix, and say that Disney’s decision to sell it’s stake in Sky to Comcast suggests the two might be willing to collaborate.

Apple is also marked out as another challenger in waiting, and GroupM speculates a spectacular acquisition might be on the horizon. “In market cap scale, Apple would spend a smaller proportion of itself to acquire Disney than Disney allocated to the Fox acquisition,” said the report. “This possibility is plausible, not probable.”

GroupM also sees promise in some of the broadcaster alliances such as OpenAP, the European Broadcaster Exchange and RTL’s Total Video Marketplace, though they are somewhat sceptical around the potential of pan-regional sales houses. “Pan-regional demand has never been great, but perhaps the convenience of EBX will liberate it,” says the report. “It won’t. Marketing is always local.”

TV in Limbo Between Traditional and Modern
Ratings continuing to fall on linear television says GroupM, even for mainstays like the NFL, though inflating unit costs has reduced the harm to broadcasters. There are signs of hope the according to the report, with direct to consumer businesses increasingly turning to traditional linear TV advertising (as VAN reported earlier this week).

But real market transformation will only take place when advanced audiences become the currency of TV says GroupM. Currently, even in the most advanced markets unduplicated viewing measurement across all screens is still a few years away. “Worldwide, TV measurement is improving, but not fast enough,” says the report.

Addressable TV advertising offerings meanwhile still make up a very small portion of the market says GroupM, due in part to how the primary sellers of addressable TV inventory in the US are the distributors who only have access to two minutes of ad time each hour. Vertical acquisitions like AT&T/Time Warner and Comcast/NBCU “could catalyse change […] Should they choose to make all their owned inventory addressable, the future will have arrived. Comcast’s acquisition of Sky in Europe shortened this future.”

As ad tech companies and broadcasters continue to introduce new targeting capabilities, the reports says the industry needs to maintain broadcast advertising’s scale and efficiency. “If the greatest weapon in our arsenal is reach, then our priority must be developing new currencies, data pipelines and planning/measurement frameworks, ‘weaponizing’ program or daypart-level activation inputs with a strategic view of the metrics that really matter to clients,” says GroupM.

The industry also has a choice to make as premium digital video becomes more TV-like. The report argues that television could now be defined just as high-impact, premium video watched on a large screen, and that if this is the case advertisers should be indifferent about modes of delivery. But if this is the case then mechanisms, systems and pricing structures need to be aligned. This will result either in digital video becoming more linear-like, or television modernising to become more like digital.

Don’t Count Out Facebook Watch
Facebook, Google and Amazon, which were picked out in last year’s report as “challengers to TV’s advertising crown” have continued to grow in the space, but not as fast as some expected in linear video.

Facebook’s push into video via Facebook Watch and IGTV don’t seem to have taken the world by storm. “Executives at legacy media companies may look on with grim satisfaction as Facebook faces heavy investments in professional content, rising compliance costs, and as user growth slows,” said GroupM. They say though that this underestimates Facebook’s long-term prioritisation of quality over quantity, and that while the success of Watch is unclear at the moment, Facebook’s future is rooted in video.

YouTube meanwhile is succeeding where others are struggling in hosting what might be considered premium short-form content. “No professional content producer has yet created a large, dedicated short-form business,” said the report. But YouTube is increasingly being watched via TV screens, a more premium environment that mobile or PC. “With YouTube buttons becoming standard on TV remotes, by mid-2018, core YouTube’s 1.9 billion users were watching 180 million hours of content on CTV daily, up from 100 million at the start of the year,” says GroupM. “Just when the market thinks that Google will fall foul of the law of big numbers, it doesn’t.”

Amazon’s video advertising offering continues to be limited to Twitch, IMDb, and ad breaks in some of its sports programming. As a result its tools for optimising and reporting lag behind its non-video formats claims the report. This lack of ad revenue fundamentally changes how Prime Video operates – while ad-supported video uses consistent reach to turn viewers into shoppers, Prime Video thrives on hits and buzz to drive Prime subscriptions.

But GroupM says Amazon’s existing video ad offerings do have big potential. As Twitch has expanded beyond its gaming origins, it may prove to be a challenger to the short-form dominance of YouTube says the report.  Then there’s the rumoured ad-supported free video service for Amazon Fire TV – “ad sales arrangements are yet unconfirmed but could combine order-insertion with automated placement to exploit Amazon’s data but avoid brand clashes in ad breaks,” says GroupM.

TV Ad Loads are Still Heavy
While there’s been a lot of talk about lightening ad loads on broadcast TV and several broadcasters have created new ad pods or shortened ad breaks, the overall effect has not been big- in the US, total ad load is still rising. In the US, GroupM says audiences are clearly replacing ad heavy traditional TV with ad-free services like Netflix and Amazon, and even in Europe where these services have been assumed to be complimentary to existing TV, there is evidence it is seen as a substitute here too.

The reports outlines a few solutions that are being trialled. Introducing hybrid revenue models or more addressable advertising are two of the most common. Another is to just take the financial hit of reduced ad loads. But where these has been trialled, GroupM finds that the effect has not been dramatic.

Another option is shortening the length of ads, which has again been experimented with in several markets, and highlighted evidence from Nielsen that in some cases 15 second ads can be as effective, or even more effective, than 30 second ads.

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