Why The Cost of A Web Video Ad Will Eclipse TV

brian-stempeck-ddt“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Brian Stempeck, senior vice president of strategic business development at The Trade Desk.

Editor’s note: This is an updated version of a previously published column.

Quick! Name a single 30-second spot that ran during your favorite new fall TV show.

I couldn’t. I had to go pull up an episode on my DVR to watch one of the many TV spots for which many advertisers paid a hefty premium last week.

It fascinates me that, even though I work in advertising, the majority of my friends and I still fast-forward through modern-day ads. The irony is overwhelming. Like a black fly in your Chardonnay, as Alanis Morissette once astutely observed.

For more than 14 years – TiVo came out in 1999 – advertisers and agencies have known that their customers routinely skip ads. The number is growing. That’s, count ’em, 46% of Americans who hit fast-forward on their DVRs at the beginning of the fall TV season, a 30% increase over the previous year. It’s the elephant in the room. But the prices to buy ads on primetime TV don’t reflect that.

Compare that to what it costs to run an ad on TV vs. the same show online. Let’s run the math.

According to tracking firms in the TV space, the going rate to run a 30-second spot on the average network primetime show is $110,200, at a $25 cost per 1,000 homes. Factor in the significant number of viewers who are DVR-ing the ads – let’s even be conservative and say 25% of viewers skip ads – and the true CPM cost is a lot higher.

That’s because at least 25% of the viewers for whom the advertiser is paying aren’t watching the ad. So the true cost to reach the viewers of the primetime 30-second spot is more like $33 CPM, according to the following calculation: $25 CPM / (1 – 25%) = $33.33 CPM.

Contrast that with recent announcements that popular television channels are now making preroll RTB video ads available on their full-episode players. What do CPMs for the online episode players look like? They’re in the $21 to $30 CPM range, or significantly lower than running on TV. Video with professionally produced content is an even better deal with average CPMs of $11 to $20.

The takeaway here is not that media buyers should immediately take advantage of the comparatively lower prices online and yank TV budgets. The reality is that at most media agencies, two separate teams manage TV and digital, and never the two shall meet. Plus, the online video ads represent significant incremental revenue for TV channels to reach viewers they aren’t hitting on TV, whether it’s a customer who’s cut cable or a new viewer who is binge watching “Suits” in one sitting, like I did last weekend.

But ultimately, at a macro level, if I’m an advertiser simply looking to reach more eyeballs, shouldn’t I be willing to pay more for an ad that’s actually being watched versus one that isn’t?

It may not happen today, tomorrow or next week, but at some point, the price of that online video spot will eclipse the price of the TV spot. There are no DVRs in the online world. Even if an ad is not getting the viewer’s undivided attention, at least it’s not being fast-forwarded. I’d also argue that because viewers know they only have to sit through one or two ads online, not five to six ads like they do on TV, they’re more willing to accept the trade-off of advertising for content.

Additionally, by giving access to many more, smaller advertisers, who perhaps don’t have $110,000 to plunk down for a single 30-second ad but would like to run on big shows with smaller budgets, TV channels are opening up an entirely new channel of demand.

Publishers often assume that those of us on the buy side of real-time bidding – the DSPs, agency trading desks, media buyers and our ilk – are always looking to bring media prices as close to zero as possible. But a big part of being on the buy side is recognizing and capturing value wherever one can find it.

In this case, that online video ad is worth a whole lot more than it’s selling for, and we look forward to seeing the auctions bear that out.

Follow Brian Stempeck (@brianstempeck) and AdExchanger (@adexchanger) on Twitter.

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  1. Thanks for the comment, Bob. Even without my adjustment to the cost of a TV ad, I think the point remains; online video ads are often priced lower than TV ads. And in some cases, you’re talking about buying the exact same programming content on full-episode players. I think that represents a big opportunity for media buyers and an interesting arbitrage opportunity.

  2. Agree with the headline but for reasons other than just ad skipping. If I could Pay $20 for Ad A on TV and $20 for Ad B, but B allows me:

    1. to re-target that viewer gaining frequency,
    2. plus I might be able to segment in Ad B displaying to just the consumers I’m interested in.
    3. and Ad B viewers can instantly surf over to my business.

    Well I would say that’s more valuable than A – traditionally – but TV (A) will evolve so at some point A = B, then converge where A is indistinguishable from B

  3. Brian, you are spot on in your article. This is very similar to the impact that Pandora is having on terrestrial radio. While we should not yank all of our radio budgets and go 100% Pandora, the mix of Pandora (digital) and radio (traditional) makes good sense. Pandora allows the advertiser to really showcase their ad, usually only one spot in the break (2 at the most occasionally) versus 9 in a row on terrestrial radio. And because of the showcasing, an advertiser should expect to pay a higher CPM than on traditional radio where there is tons of more competition.