Targeted TV Advertising

By Steven Pattheeuws and Vikram Dhaliwal

Revamp of a one billion euro industry

Consumers are swamped with ads these days, making it more difficult for advertisers to stand out in the TV and VOD world. The holy grail in the jungle of mindless spam and multiscreening is simple: relevance. And how do you make your message relevant? Through targeting and personalisation. Take Lisa. Her car lease is about to expire, she lives by herself and she has a steady mid-level income. She is also environmentally aware, as she’s had solar panels installed on her roof. While she’s watching her favourite show, her attention is grabbed by the new Toyota Prius Plug-in Hybrid, now available on lease and in her favourite colour, red. The concept is not new – targeted advertising is a proven concept from the online world (e.g. Google, Facebook). However, advances in technology make it possible to apply this concept to the traditional advertising world.

The potential of targeted advertising       

Traditional TV advertising uses estimated reach to purchase TV spots in advance. Everyone watching the programme views the same spot, a scattergun approach that is both inefficient and wasteful because many of the viewers are not in the target group. Traditional advertising revenues have been in decline, but they are about to be revived thanks to targeted advertising, an approach that is already successful in the online world.

Building a targeted advertising proposition has two main benefits. First, there is less waste in advertising inventory. Traditionally, the impact of an ad increases when it is shown during a popular TV programme. However, this involves bombarding many consumers with messages of no relevance to them. Targeted TV advertising focuses on delivering the advertisement to the right individual at the right time. Second, targeted advertising achieves a higher ROI on advertising spending. It tunes the message to the right audience and results in higher engagement and more programme stickiness, making the advertisement more effective.

Two flavours of targeted TV advertising

Targeted TV advertising can take two forms: programmatic advertising and addressable advertising.

Programmatic advertising leverages set-top box data based on actual viewership of programmes rather than panel research determining who is watching which programme. The advertiser knows which programmes the target audience is watching and can select advertisements for those programmes. The main benefit for advertisers is that they only pay for the ads that the target group watches. The main advantage for media players is that this form of enhanced advertising does not require access to customer profiles and viewing data on all the viewers.

Addressable advertising goes one step further by sending specific advertisements only to viewers in the target audience. Data on income, postal code, viewing behaviour, age group and other characteristics tells the advertiser which households are in its target audience so that it can select the advertisements to broadcast to them. In Lisa’s case, the advertiser can target Lisa regardless of the programme she is watching and show her that a fantastic new Toyota Prius is available to lease, in red. Advertisers buy a target audience rather than the advertising space around a programme, and are better able to monetise the full potential of their advertising inventory. 

Addressable advertising goes one step further by sending specific advertisements only to viewers in the target audience. Data on income, postal code, viewing behaviour, age group and other characteristics tells the advertiser which households are in its target audience so that it can select the advertisements to broadcast to them. In Lisa’s case, the advertiser can target Lisa regardless of the programme she is watching and show her that a fantastic new Toyota Prius is available to lease, in red. Advertisers buy a target audience rather than the advertising space around a programme, and are better able to monetise the full potential of their advertising inventory. 

Main impact drivers for telecoms and broadcasters

The value of targeted advertising for broadcasters and telecoms is twofold.

First and foremost, they can achieve higher CPMs (cost per minute) on the targeted ads than on regular ads. In other words, advertisers are willing to pay more for a targeted ad. For telecoms, this means demonstrating that targeted ads are more effective, requiring them to build their ad activation measurement and reporting capabilities. Second, targeted advertising also allows broadcasters and telecoms to monetise some of the ad inventory that was previously difficult to sell in an untargeted model (e.g., smaller TV channels, less popular TV programmes or early morning programmes).

There are two hurdles to value creation, however. The first is insufficient customer reach. If targeted advertising fails to reach all the people in the viewership base, the value capture will be lower than the full potential. While this sounds obvious, reaching all customers is not that straightforward. After all, each telecom and cable company covers only part of the population, proportional to its TV or broadband market share. Broadcasters must therefore consider engaging with multiple telecom operators and cable companies to reach their full viewership base.

The second hurdle is ad volume. The more ads that can be turned into targeted ads, the higher their impact potential. This means that telecoms and cable companies need to sign partnership deals with as many ad inventory owners as possible –  basically with all relevant TV broadcasters, but also VoD providers, for instance.

A match made in heaven

To make targeted advertising happen, several “ingredients” are required. Broadcasters own content and valuable advertising inventory but lack data on who is watching their programmes. Some telecom operators have their own advertising inventory and channels, but more importantly they have access to individual customer data and profiles. They know who is watching what and when, and which profile matches their customers – limited, of course, to their own TV or broadband customer base. It is clear that maximum value can be created if telecom operators and broadcasters work together and play complementary roles.

As indicated, covering the full viewership customer base is key to offering targeted advertising to all viewers, and the more TV channels covered, the higher the impact potential. The way forward lies in non-exclusive arrangements or in partnerships between multiple broadcasters and multiple telecoms. Note that the latter option only applies to addressable advertising in which ads are tuned to the individual viewer, as opposed to programmatic advertising, which is more panel-based.

Finding the right model

There is no one “right” model for capturing the value of targeted advertising. There are multiple models that could work, from full-fledged advertising plays over joint ventures to relatively “lighter” commercial partnerships. It all boils down to the role a company plays in the ecosystem (e.g. whether broadcasters and even certain telecoms own their own TV channels or a content library and have access to their own advertising inventory versus others that do not), current capabilities (e.g. access to consumer data), and potential capabilities. It also depends on the role a media player aspires to play and its willingness to invest in new advertising technology and big data capabilities.

So what roles can telecom operators and cable companies play? Moving from “limited” to “expansive” (roles are cumulative), they are:

1. only offering technical ad placement capabilities

2. collecting and selling raw customer data

3. processing customer data and generating customer profiles

4. managing own inventory for own VOD environment and own TV channels (if any)

5. participating in the management of third-party ad inventory

The more expansive the role, the larger the share of CPM uplift a telecom operator or cable company can capture but, equally, the larger the investments required. A carefully crafted view of the in-country advertising and media ecosystem will shed light on which opportunities are available, allowing for current telecom assets (technical and customer data) and telecom market share in TV/broadband.

The time is now

The potential value of targeted advertising is significant, but how to capitalise on it differs from one player to the next. Nevertheless, there is one key message for all players: act now or you will miss the boat. First of all, big players like Facebook and Google are already exploring how to use their huge database for targeted advertising. Second, bigger and smaller players are already forming partnerships. Several players in the Dutch market are running pilots on targeted advertising. Considering the complexity involved in choosing the right partner (e.g. taking legal and exclusivity issues in account), you don’t want to be left behind with only a few mediocre partners to choose from.

Making a move now will not necessarily require a multimillion dollar investment to create an all-encompassing advertising solution. After all, everyone in the market is still searching for the right model and the right capabilities.

Moreover, advertisers themselves are not ready for a higher level of targeted advertising (hypertargeting) on an individual basis because most of them still use more traditional segmentation (e.g. income and gender). So a state-of-the-art targeting machine may not be necessary from day one. Nevertheless, the clock is ticking. Basic preparations would be a smart move, as well as exploring possible partnerships, exclusive or non-exclusive, with broadcasters or telecoms – bearing in mind that possible competitive tensions between certain parties may exclude working with both simultaneously.

Getting there

Four critical capabilities must be in place to offer targeted advertising.

The first is customer data, neatly stored, and customer opt-ins to use the data in line with GDPR. This is often a major bottleneck, for instance when older opt-ins do not properly cover the purpose of targeted advertising in the agreement.

The second capability is customer analytics. Fortunately, as we have seen in several instances, not many TV advertisers are ready for hypertargeting. However, basic demographic and viewing data is a must. Location data is another relevant dimension, particularly because global OTT players have a harder time capturing mobility data than mobile operators do (OTT apps only capture location data when the app is activated). One key element to watch out for is the difference between household data and individual data. After all, a 15-year-old girl is likely to have very different interests than her 50-year-old dad, but both of them may watch the same TV set at different times.

The third capability is ad delivery. This will require a commercial partnership with an established ad tech player or an acquisition. Unfortunately, many of the more mature ad tech companies have already been acquired and there are fewer start-ups in Europe than in the US. In addition, European players may not have the same footprint as the telecom operator, so an outright acquisition may leave the latter with ad tech businesses in countries where it is not active.

Set-top boxes also need to be enabled, which may require replacing older versions. This could prove to be expensive, so a phased approach may be the way forward, starting with more “interesting” customer segments (e.g. more affluent customers, urban environments, or families).

The fourth capability is the ability to sell the ad inventory. Telecoms may need to build up an ad sales force or seek partnership with a media company that already has the capability. Existing sales forces will need to be retrained to move from selling regular ads on linear TV to selling targeted ads.

Don’t wait, start small

One last consideration. A lot needs to happen to bring targeted advertising to life. As speed is important, one way is to “start small”, for instance by developing targeted ad capabilities on a single proprietary platform first (e.g. own VOD platform or own TV channels). This basically means starting ad-hoc targeting pilots and slowly building a strong targeting capability from there. There is no need to roll out targeting capability immediately across an entire customer base. Start with the customers who have opted in and already own a set-top box that has targeting functionality. And finally, telecoms and cable companies should consider acquisitions or commercial partnerships, even with established targeted ad joint ventures in the countries where they are operating, as opposed to building all capabilities organically. Broadcasters should reach out to the telecom world and seek strong partners that can build some of the capabilities they do not have and that can give them the individual customer insights they so dearly want.

“Advertisers are willing to pay more for a targeted ad”

Contact us

Steven Pattheeuws
Partner Strategy&, PwC Netherlands
Tel: +31 (0)88 792 29 36
Email

Vikram Dhaliwal
Senior Associate Strategy&, PwC Netherlands
Tel: +31 887922874
Email

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