Streaming is arguably the TV industry’s most powerful growth engine. But it’s still far from a mature business.
Less than a year ago, connected TV officially outgrew cable as the most popular way to watch TV. Now, achieving profitability is the priority, said Eric Schmitt, research director at Gartner.
Which is why programmers took ad tech off the backburner during their upfront presentations this year.
“Upfronts used to be all about content programming,” Schmitt said. “Now they’re about data and technology.”
The ongoing writers strike kept celebrity attendance to an all-time low, but even without the protests, Kim Kardashian’s or Doja Cat’s presence isn’t the motivator behind upfront ad deals.
Schmitt spoke with AdExchanger about how streaming is changing the TV upfronts.
AdExchanger: What were the main themes at last week’s upfronts?
ERIC SCHMITT: TV networks are prioritizing bundling their linear and streaming content to get advertisers more comfortable buying annual guarantees on streaming inventory. Many brands still spend very heavily on linear.
Measurement is also still a massive pain point in TV advertising, and it’s only getting worse without a consensus on how to practically measure buys across screens. The measurement gap is why alternatives to Nielsen got more airplay this year than they ever have during upfronts.
But more CTV spend is moving to programmatic. How is that shift playing out in the upfronts?
The purest form of programmatic is biddable inventory. There’s just enough biddable streaming inventory out there to chum the waters at the DSP level, but it isn’t much.
Since most programmers still measure their own inventory differently, the promise of programmatic is to give advertisers more consistency in running and measuring ads across platforms. But that only works if the inventory is actually there.
Networks will do everything they can to sell directly instead of making media biddable because they don’t want a bunch of middlemen taking fees on their inventory. That’s why CTV ads are still direct sold for the most part, which includes programmatic guaranteed because they’re direct deals, not biddable.
There’s clearly a lot of change happening in the TV space. Were there any advertiser concerns that went unaddressed last week?
One-to-one targeting on TV, be it streaming or linear, raises challenging questions about privacy, including how to safely deliver addressable ads on the back of an IP address.
Privacy is the issue lurking in the background that we’re going to hear more about as time goes on, especially if more inventory moves to biddable programmatic, which involves third-party ad tech partners that may or may not have proper user consent in place.
Is that why programmers still lean on data-driven linear (DDL)?
DDL takes most privacy concerns off the table by working with aggregate data.
It can also limit ad waste by helping advertisers spot the shows and networks they shouldn’t be buying because they’re not indexing highly with a target audience. Buyers can then move budget into inventory that performs better with their audience.
Media companies might use the bid stream to distribute the remnant inventory they can’t sell at a premium while charging higher CPMs for the more popular inventory through direct deals.
How can streamers keep their advertising business profitable?
One key growth area will be the question of ad loads, and it will be critical for streaming services to manage their ad loads with their subscription business.
Some services have ways to optimize their ad load around the user experience. One strategy is to keep ads to a minimum when subscribers first sign up, and then increase the ad load gradually so that a higher ad load feels less overwhelming.
Other streaming services let brands sponsor entire TV shows as a less interruptive form of advertising so platforms keep their ad volumes low without giving up yield.
If a programmer can improve ad targeting, it can also charge higher prices for more effective ads, then lower the minutes of ads per hour of content.
Then why are most of the major streaming services increasing their ad loads?
Streaming services are under a lot of financial pressure right now, in part because of the macroenvironment. Programmers need to squeeze as much money as they can out of advertising for profitability. The easiest way to do that is by stuffing more ads into content – it drives money right to the bottom line.
But it also causes subscriber churn. That will be next quarter’s problem.
Will programmers choose to focus more on profitability or subscriber growth this year?
Streaming is in its era of profitability. Subscriber and viewership growth will always be important, but streaming is in its adolescence, and it has to prove itself as a viable business. And that means profits, which streamers are measuring with ad revenue per user.
Will there be winners and losers in streaming based on their long-term profitability?
There’s too much competition in the space, and we’re going to see some shakeouts. Building long-term profitability with subscriber loyalty and retention will help determine the scorecard.
Answers have been lightly edited and condensed.
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