Interview Transcript

How do you explain the recent trends seen in TV ad spend versus digital? Digital has been growing over the last 5-7 years but TV spend has held up. How do you look at the correlation between TV spend and viewership and why has TV spend held up so much?

There are a few things I need to pull out of your question because (a) It is a complex question and (b) the answers are even more complex. It's not a simple black and white. The world is not quite as simple as digital versus TV, because you do have digital TV.

For example, Hulu or Roku are ads targeted in a digital way but affectively like traditional TV or virtually traditional ads. You have things like YouTube TV now that’s serving ads. But in essence, for YouTube customers who pay a subscription is $30 to $40 a month in the US. There are shades of grey. That's one of the ways TV companies have held off is by trying to expand audiences through digital TV and keeping up the ad revenue there.

The other thing I would say is that TV ad revenue is now under pressure in 2019. And in the US, the pressure started in 2018, as it is in decline, but, surprisingly, it did not happen three to five years earlier. In essence, for a long time, advertisers would realise they should be moving money from TV to digital, but digital looked very fragmented, and had a lot of brand risk associated with it. If you wanted to do one big, bold thing TV was still the biggest thing that you could do. On top of that, a lot of agencies who provided advice to CMOs and marketing teams would be encouraging TV because (a) they understood it better and (b) they made more money by doing mass-market campaigns on traditional TV. There was a mixture of inertia based on old school business models, and some pragmatic realities, it’s difficult to spend as much money with the same impact on digital.

Over the last few years, though, Google and Facebook in particular, but other digital properties have got bigger and bigger while the TV audience has been declining. Therefore, the argument that ‘the Internet is too fragmented, and TV is still really big’ is getting worse and worse. Further, YouTube, in particular, has done a much better job in the last year or two years of cleaning up its act when it comes to brand friendliness. So the last year they have deleted an enormous amount of unsavoury content. Also, for content that might be questionable for brands but does not breach YouTube's quality guidelines, they have just stopped serving ads. By doing that, YouTube is now a much more acceptable platform to brands.

What that's done in the last few years, with Google, Facebook and others getting so big, advertisers are now moving that money over. That does not mean TV will die. But if you look at the ROI of TV advertising versus digital video advertising, in general, TV is a lot worse. Why is that? The CPMs, the price you pay, is typically higher. Then there's a whole load of waste in the system. For example, when you buy an audience on TV, let's say the Game of Thrones audience and the audience is 10 million people, that's 10 million people who watch Game of Thrones not 10 million people who watch the ads within Game of Thrones. This is because during the ads break, people are channel surfing, going to the toilet, grabbing a beer, going on Facebook, or whatever they're doing. Not many people are watching yet. So, my best guess is only about 30% of people are watching the ads, while the rest of are doing something else. So whatever CPM you're paying, you can triple it for the people who actually watch the ads, which makes inefficiencies even more glaring.

Also, what makes it wasteful is that TV advertising is mostly still targeted based on people who watch a programme not people's demographics, spending power, intent, etc. So if you're a niche brand, let's say you're BMW, and you're serving an ad on Game of Thrones. Let's say 10 million people watch Game of Thrones in reality; that means only 3 million people see the ad. However, what percentage of 3 million people are actually going to buy a BMW or a luxury car in the next three years. The answer is not many. Some of them will be too young, too old, do not have a driving licence, or do not make decisions about buying a car because they have a company car.

Also, many cannot afford a BMW. When you actually narrow it down, it's probably 10 or 20% of the audience that actually can afford a BMW and might buy a BMW. So, you're down from 10 million people to 300,000 people. Yet you're paying to serve an ad to all the rest. So the inefficiencies on TV become glaring. Now, if I were running a TV company, I would radically fix that and let advertisers target people based on how Facebook and Google allow targeting rather than who watches what programme. They still have a structural problem that the ad sets are too expensive even after all of that. Nonetheless, It would be a good way to mitigate the risk.

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