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Bold call: Linear TV has passed the point of no return

January 3, 2024
in Technology
Bold call: Linear TV has passed the point of no return
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This article is part of a series exploring trends in marketing, media and media buying for 2024. More from the series →

Ad spending is bouncing back, but TV advertising isn’t sharing the spotlight.

Despite broadcasters’ efforts to revamp and embrace new technology, their attempts seem to be falling short. TV ad spending in the third quarter made that all too clear. 

Warner Bros, Discovery, Comcast, Fox, Paramount — all these big players experienced significant dips in ad spending. Even the media powerhouse Disney felt the pinch, watching its traditional TV ad revenue dwindle due to fewer ads and viewership.

And no, these drops weren’t just a blip in a wobbly ad market. Indicators actually point in the opposite direction. Giants like Google, Amazon, Meta and Pinterest showed robust growth in ad spending over the summer. Analysts including Brian Wieser forecasted a 5% surge in U.S. ad spending this year, and publishers are upbeat about the growth trajectory. Plus, job numbers are up, inflation is cooling down and consumer spending remains strong. 

The fact that the TV ad market didn’t exactly thrive amid all this positivity will be a real worry for broadcasters. Yes, they might still score big during the holiday season, but there’s a deeper issue at play here. The largest advertisers nowadays aren’t the traditional TV giants anymore. Rather, it’s the likes of Amazon and Google — and they prefer to splurge on digital ads. And even if they did want to give TV ads a shot, the rising costs thanks to inflation are making them think twice.

“When I started planning AV campaigns they were focused on linear TV, and you might tack on some video on demand depending on the audience and the ambition of the client,” said George MacKean, an account director at independent media agency Bountiful Cow and a former TV planner. “Over time that’s shifted. For some clients with young-ish audiences, linear TV just isn’t cost-efficient anymore.”

Maybe this would be easier for broadcasters to handle if the largest TV advertisers were still pouring money into TV. However, that’s not the case. They’ve been shifting their advertising dollars away from TV for various reasons for years now.

“If anything, this situation is going to get worse for the broadcasters,” said MacKean. “While the ad-supported tiers from Netflix and Disney+ have had modest take up, both companies are going to further incentivize people to move onto that tier.”

As brutal as this reality check may be, it’s hardly a shocker for most TV execs. They could see this day coming, but few expected the impact to be this swift and severe. Otherwise, they would have been better prepared. Their ventures into connected TV, AVOD, ad-funded and ad-free streaming, et al., aren’t exactly raking in the cash they hoped for. 

In some cases, these strategic shifts are actually gnawing away at their traditional TV audiences, making the quest for ad dollars an even steeper climb. 

Take ITV, for instance. Its streaming service, ITVX, was meant to attract viewers who preferred Netflix over ITV’s linear channels. But a year into it, it seems to have backfired. Instead of attracting new audiences, it mainly siphoned off viewers from the more lucrative linear broadcasts. 

In October, despite lighter viewers consuming three times more online content compared to 2022, daily viewing only increased minimally due to low initial engagement, according to Enders Analysis. In contrast, heavy ITV linear viewers increased their online viewing nearly fivefold.

“This is where I believe the broadcasters are running into real problems,” said Wieser, a media analyst and author of the Madison and Wall newsletter. “Cord-cutting and the increase in consumption of ad-free or ad-light streaming services means it is increasingly difficult [for advertisers] to reach audiences at the same level of reach [as they once did] — at any cost.”

While not everyone sees the situation in such bleak terms, even the most optimistic believers in TV have to admit that time is running out for the industry’s top dogs to give their trusty workhorse the makeover it desperately needs. Let’s face it, Netflix, Amazon, YouTube, TikTok and their ilk aren’t going to ease up in their own race to claim those advertising dollars. Oh, and don’t forget about the competition from retail media owners. As ever, everyone wants a slice of the TV pie.

In 2023, the broadcasters’ intended response to this landscape became clearer. They’re making concerted efforts to target the rapidly expanding digital ad budgets, rather than desperately clinging to the slowly dwindling linear TV ones. While TV network ad revenues declined, streaming platforms like Max, Discovery+, Paramount+ and Pluto TV saw significant growth in ad revenue (albeit from a much smaller base). This was the underlying subtext across upfronts, partnerships and organizational overhauls over the last year.

“With the emergence of more global streaming services having an ad tier there’s a change in the way marketers are thinking about buying in so far as they’re thinking more about centralized global, pan-regional or international deals,” said Lee Sears, head of international advertising sales and integrated marketing at Paramount Global. “We can be part of that conversation because we have a global subscription service in Paramount+, but we also have the world’s leading AVOD service with Pluto. So when marketers want to have a premium video TV- like buy, we’re able to do that at scale.”

Certainly, it was the driving force behind everything the pan-European broadcaster’s video marketplace RTL AdAlliance has undertaken during that time. In fact, its digital ad inventory is now a far more significant part of its pitch to advertisers. Since 2019, it total digital ad inventory has grown a whopping 15 times, surging from 233 million to a colossal 3.6 billion.

“The key is to digitalize the linear ad offering, streamline the digital footprint, and to unify booking and measurement across all channels,” said Stéphane Coruble, CEO of RTL AdAlliance. “The smart TV remains the center of European households. But to effectively advertise across the entire content offering, advertisers need comprehensive access. We advocate for a consumer-centric advertising model, prioritizing effective and impactful ad buying experiences.” 

Think of it like a recategorization of TV, where the likes of the RTL AdAlliance expands its capacity to reach audiences across various video formats beyond traditional television. For further proof of this shift, look at the career path of Sky’s Graeme Hutcheson. In four short years, he’s transitioned from overseeing Sky’s Adsmart offer, allowing advertisers to target set-top box data, to now leading the team focused on monetizing Sky content across digital platforms like apps, websites, YouTube and TikTok.

“We had a fairly stable but not growing [digital] business about four years ago, which we’ve turbocharged over that time,” said Hutcheson. “We’ve got a good working relationship with all platforms. They want our premium content, which keeps their platforms interesting and sticky for audiences. In return, we’re able to drive ad dollars from that.”

These arrangements typically come in two flavors: First, a revenue-sharing model where Sky takes a share of the platform’s ad sales. And second, a “first-look agreement,” ensuring that Sky gets the initial opportunity to sell advertising space. Whatever is left over gets sold by the platform, although not exclusively. For instance, YouTube can’t sell Sky Sports directly but can include it in a sports package. 

“What we’re trying to do here is similar to what we do in the AV world where we can group that [the ad inventory] all together in one seamless proposition that is easy but more importantly easy to buy for advertisers,” said Hutcheson. 

The next logical step for Sky — and any other broadcaster — is to get to a point where they’re able to bundle all their ad inventory together. If executed successfully, they will be better equipped to thrive in a world where advertisers like Shein, Amazon and others redefine the role of branding and the relevance of traditional advertising.

The once rigid guidelines advertisers adhered to when buying TV ads are gradually disappearing. It used to be a mantra of “TV reaching a vast audience at once.” However, with the pervasive nature of digital advertising, those old standards no longer fit the bill.

Now, these ads can practically do whatever marketers want, as long as they’re made and measured the right way. And increasingly they are. Gone are the days when the ability to measure across different devices, at the heart of this issue, is an unattainable dream.

These days, cross-device measurement for TV advertisers is steadily improving — at least from Nielsen’s perspective. There were very few alternatives to the TV measurement currency that really established themselves in 2023.

“It’s in our collective interest as publishers to work together to enable new currencies and to share measurement approaches,” said Sears. “By doing that we’re able to harness our audience and show the scale of premium content and what it can actually provide.”

So while it’s not the final curtain for TV, these execs are running out of time to reinvent their linear businesses.

>>> Read full article>>>
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