Home On TV & Video How Pay-TV Operators Could Give Addressable A Boost

How Pay-TV Operators Could Give Addressable A Boost

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On TV And Video” is a column exploring opportunities and challenges in advanced TV and video.

Today’s column is written by Chris Hock, head of business strategy and development, media and entertainment, at Adobe.

EMarketer pegs the US addressable TV ad spend at $1.56 billion for 2017. That’s double the rate of 2016, which was double the rate of 2015. And while this is good news for the industry, it can get better.

Here’s why: The pay-TV operators that control the data and ad insertion capabilities needed to run addressable advertising only enable it on their own share of TV ads, which is about two minutes of advertising per hour of television. If operators extend addressable advertising capabilities out to their programming network affiliates, they can make all 14 minutes of advertising per hour of television addressable. And that’s a potential sevenfold increase.

It’s also a potential sevenfold decrease in useless ads and wasted ad spend because addressable advertising delivers relevant ads to each viewer based on the attributes of their household. This extra relevance means that viewers in households without a dog don’t have to see dog food ads, viewers in households without school-age kids don’t have to see back-to-school ads and apartment dwellers don’t have to get ads for home security.

As addressable TV gets rolled out nationally, the inventory owners’ TV advertising rates go up, effective rates to advertisers go down, new advertisers who previously could not afford to do TV advertising can now enter the market and consumers get more relevant ads. In general, everyone is happy. But to get to this happy place, we need to move beyond addressable advertising only being available on the pay-TV operator’s inventory. Programmers also want the capability to do addressable advertising. And, on traditional pay TV that goes through the operator.

At the same time, pay-TV operators likely want something from programming network affiliates. They may want to lower their rising content programming costs or at least to make a revenue stream off their data.

Between Q1 2016 and Q1 2017, Comcast’s programming costs rose 13%. Likewise, Charter Communications programming costs rose 8.2%. Even Altice, which has been focused on cost-cutting, faces rising programming costs [PDF] with a 4% year-over-year (YoY) increase for Optimum and a 2% YoY increase for Suddenlink. These costs have been rising like this for years.

If programming networks want the addressable advertising capability – and the rich census-level measurement that comes with it – and pay-TV operators have the addressable advertising capability, why haven’t these companies struck a deal for their mutual benefit?

Perhaps the largest reason is that pay-TV operators have to be cautious about how they empower programming network affiliates to use their subscriber data. Concerns about protecting personally identifiable information are real, and data is a huge asset of pay-TV providers. They need to be in full control of their data.

The other hurdle is the fact that the pay-TV operator likely has a business selling local ads in the markets of its footprint. If a pay-TV operator sells ads to, for example, a local auto dealer association in a particular market, then it isn’t going to want to empower its programmer affiliates with a capability that would allow them to compete for this business in their national ad slot.

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On the business level, the challenges are still being worked out. How should operators value their data? Who at the operator will step up and rally the organization to this cause? Does this mean we need to renegotiate carriage agreements for data rights? Is there an independent party the operators and programmers can work with to speed up this process while ensuring each party gets what it needs?

At the end of the day, TV is at an inflection point: Pay-TV operators own the majority of the data but programmers own the majority of the inventory. If traditional TV companies are to remain relevant in this age of FANG (Facebook, Amazon, Netflix, Google), both parties need to figure out how to marry data with inventory and make TV the best platform for brand advertisers to deliver the right message to the right audience at the right time.

Follow Adobe (@Adobe) and AdExchanger (@adexchanger) on Twitter.

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