The TV advertising industry is trying to reinvent itself and become more digital, but there have been signs that the long-held promise of targeted TV advertising is losing some steam with advertisers.
The pandemic has accelerated cord cutting as the number of streaming services grows while advertisers cut linear TV budgets and rework big commitments with networks like NBCUniversal, Disney, and ViacomCBS.
And AT&T — one of the biggest sellers of targeted, or so-called addressable advertising — is reportedly mulling spinning off its pay-TV service DirecTV and digital ad firm Xandr that was supposed to help it along.
Addressable advertising has always represented a small amount of TV inventory, but the coronavirus has exposed some of its pitfalls like high ad prices, a lack of measurement standards, and growing competition from streaming TV companies.
When the coronavirus shut down production schedules and sports,advertisers pulled their addressable campaigns along with national ad spend, said Matt Kramer, managing director of advanced advertising at Omnicom Media Group.
Addressable budgets typically go into small "innovation" budgets that advertisers use to test different mediums. Its high price makes it a barrier for advertisers and an easy place to cut.
Kramer said that addressable ads cost 10% to 20% more than OTT ad inventory. Steven Golus, an independent sales and training consultant for TV networks and agencies, said that CPM rates for addressable advertising can range from $150 to $400 compared to linear TV CPMs of around $30.
"There are questions around the ROI of this medium and a lot of that comes from pricing," Golus said.
Also, advertisers can get the household-specific targeting promised by addressable ads from digital streaming giants like Roku and Amazon — along with lower prices and the ability to easily turn ads on and off.
The promise of making TV ads more digital with targeting and measurement has existed for decades. For the TV companies, addressable is a way to squeeze out more money from TV ads as they face pressure to reduce their ad loads in line with streaming services. And for advertisers, addressable promises to avoid showing people the same ad over and over.
"We have the ability to look at who we've hit with our national buy and make sure that we're hitting the rest of those people or play with frequency," said Lisa Herdman, SVP and director of national video advertising at RPA.
Here's how it works: Addressable advertising plus into cable boxes to zap ads to specific households. A person in the market for a car might see an ad for a local car dealership on TV while a fast-food restaurant might target ZIP codes with local offers. AT&T, Dish, and Ampersand are the biggest players in the space and negotiate fees with networks to carry their signals over satellite and cable services and are allowed to sell two minutes of ads space every hour of a local broadcast.
But addressable inventory makes up a tiny portion of TV ad inventory and ad spending. Dave Morgan, a longtime TV advertising exec and CEO of Simulmedia, estimated that 5% to 10% of national linear TV advertising is capable of being made addressable.
As more people cut the cord and shift towards streaming, the number of people that can be reached through pay-TV services is dropping. AT&T and Dish have collectively lost millions of pay-TV subscribers, giving advertisers a shrinking audience for all TV ads, addressable included.
"TV is a really hard, complicated, fragmented world with a lot of legacy technology," Morgan said. "If you want to light up every house with gas, you have to build the pipes to bring the gas to every home."
One of the biggest challenges with addressable advertising is measuring it the same as national or OTT advertising, said Jane Clarke, CEO and managing director of the Coalition for Innovative Media Measurement.
Nielsen has long measured national TV inventory using panels that track viewership of shows but not specific ad slots, making it hard to break out addressable and non-addressable inventory, she said.
"It's holding back measurement," she said. "You can't sell addressable and not have a way to measure and sell the non-addressable portion, too."
There are also creative challenges, said David Cohen, CEO of the Interactive Advertising Bureau and former North American president of ad-buying firm Magna. Advertisers typically need lots of creative to target by household. For example, an addressable ad may feature information about how many kids are in a house or anticipate that a family is about to take a vacation.
"We've been talking about addressable for 20 years," he said. "In certain categories and verticals, it's a no-brainer and in others it's a hard sell. It has historically been a patchwork of lots of different people that you need to stitch together to create a national footprint, and it's been hard."
Now, a number of companies are working to package ad inventory together for advertisers, signing partnerships with other firms, and finding creative ways around measurement challenges.
Ampersand and Xandr want to streamline how advertisers buy TV inventory that runs across multiple sellers and platforms in one place. Ampersand pools ad inventory from Verizon, Comcast, Cox, and Roku while Xandr works with Altice USA, Frontier, DirecTV, and Bloomberg.
Nicolle Pangis, CEO of Ampersand, said that when the coronavirus hit and shut down sporting events, the company helped advertisers find audiences that mimic sports fans.
"This forced brands to find their audiences in places they might not otherwise have moved money," she said.
Other initiatives like Vizio-backed Project OAR want to standardize how addressable ads are bought and sold by using smart TV data that is baked into devices.
Networks like WarnerMedia and companies like Dish are experimenting with selling addressable ads in national inventory. For example, networks are using national ad slots that are usually reserved for networks to promote their own programming to experiment with selling addressable inventory, said CIMM's Clarke.
Still, the TV industry has been slow to catch up with new ways of buying ads, said Howard Shimmel, president of research firm Janus Strategy & Insights and a former TV executive.
"Before now you didn't necessarily have the technical infrastructure to deliver it in the national inventory — we're getting closer to the place where that can happen and happen at scale across lots of providers," he said. "There is still a little bit of changing the inner architecture of the way media companies and agencies work to make this happen at scale."