Needham & Company’s Laura Martin is speaking at the Convergent TV World conference on March 5-6 in New York City. Click here to register.
Generative AI is complicating the already rather bloody streaming wars.
Despite deepening consumer distrust of AI content, marketers and streamers are embracing AI-powered products. Marketers want cheaper access to video impressions with digital-style performance metrics to justify their spending, while streamers are trying to meet these needs – and attract more ad dollars – with fresh AI offerings.
Although AI introduces unprecedented efficiency to the connected TV ad landscape, it also creates a “technological disruption” that comes at a cost, said Laura Martin, a senior entertainment and internet analyst at Needham & Company.
The recent spike in AI-generated content, for example, is raising yet more questions about what actually constitutes premium content, she said. AI is also giving a leg up to the Big Tech companies now fiercely competing in the streaming TV space.
I caught up with Martin to explore how AI is changing the TV advertising playing field.
AdExchanger: How is AI changing the CTV advertising landscape?
LAURA MARTIN: One of the main use cases for generative AI is making video content. Studies suggest the volume of AI-generated content on the open web – including video – is about to jump exponentially this year.
While a higher volume of video ad space lowers overall ad prices for media buyers, the recent jump in AI-generated video is further blurring the lines between what is and isn’t premium content.
Those gray areas make it possible for YouTube to get increasingly more of the ad dollars that agencies earmark for CTV. And as YouTube eats into streaming TV ad revenue, dominant players like Netflix and Disney will likely need to keep lowering their CPMs to compete.
How does this pricing trend translate into Wall Street’s valuation of media companies with streaming services?
Wall Street looks at the marginal dollar, meaning the next dollar of spend. In this case, investors are evaluating whether the next dollar of TV or streaming video ad spend is going to, say, Netflix, Disney or Paramount Skydance. Increasingly, analysts predict the next dollar will be allocated to content created by AI.
That shift in dollars is raising all kinds of questions about consumer trust. If someone is enjoying a video and you inform them that the video is actually AI, suddenly that person hates the video. Humans generally distrust machines and see them as threats.
If consumers distrust AI so much, why are advertisers so gung-ho?
In addition to making video advertising cheaper, AI also helps with ad performance.
In our industry, we’re hearing a lot about “performance TV,” or TV advertising that has pricing, controls and metrics reflective of search and social. Self-service platforms and standalone companies like MNTN are cropping up to bring that performance marketing environment to CTV by helping smaller brands generate and place ads in programmatic environments.
This trend is opening the floodgates for digital-native marketers trying CTV for the first time, which can sustain long-term growth in CTV media investment.
How is AI changing the power dynamics between media companies competing in the streaming wars?
So, bad news: In the near term, walled gardens will get stronger, according to Wall Street.
Take Google and Amazon. These two companies are competing on two fronts: generative AI and streaming. Both have streaming services in addition to large language models (LLMs), namely Gemini and Anthropic. [Editor’s note: Amazon is a minor investor in Anthropic, which is the primary cloud provider for Amazon Web Services.]
As these LLMs continue growing, they’ll continue driving demand and monetization for the streaming services they back. YouTube is ahead in the streaming race, and further developments in gen AI could help give it a wider lead.
The more entertainment-focused media companies like Netflix, Disney and Paramount Skydance aren’t sitting on top of giant LLMs, as are YouTube and Amazon Prime. This could be a competitive disadvantage for the non-walled gardens.
Is the AI arms race a reason for media companies to keep diversifying their businesses?
AI is exciting, but for media companies that are newer to developing AI-based capabilities, it may be lower on the priority list compared to impending M&A.
Netflix and Paramount Skydance are distracted right now competing to acquire Warner Bros. Discovery. So, for those three companies, AI may be peripheral. If Netflix buys WBD, for example, it’ll need to stay focused on paying off merger-related debt and managing the culture clash that’s sure to occur.
Disney will be a company to watch as it continues pushing ahead with AI-based capabilities. But first, we need to find out who will be succeeding Bob Iger as Disney’s next leader.
This interview has been lightly edited and condensed.
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