The Year Ahead For...Television

Jon Horrocks suggests the TV market will benefit from the popularity of online video, but agencies have to keep up by altering their buying habits.

Jon Horrocks: ‘We know consumer viewing behaviours are changing at a dramatic pace. And yet our screen-buying habits remain conservative’
Jon Horrocks: ‘We know consumer viewing behaviours are changing at a dramatic pace. And yet our screen-buying habits remain conservative’

Sometimes, to look forwards, you have to look backwards… and I’m looking back to the early 90s, when I had more hair, was two stones heavier and drove a dodgy Lancia, and BSkyB emerged from the merger of Sky Television and British Satellite Broadcasting. Before this, TV had been a straightforward affair involving planning at optimal weights on two channels and negotiating with a near-monopoly.

Despite initial excitement, when we thought BSB bringing live opera from La Scala to the living room would change the way we bought TV, opening it up to magazine-style precision-targeting with resulting premiums, multichannel presented us with cheap frequency and marginal incremental cover and, as such, was priced at a discount to terrestrial channels.

Fast forward 20 years and ITV and Channel 4 are still priced and valued at a premium for their ability to build mass cover quickly, although the variety of multichannel TV has enriched the TV planning experience and Sky Media and its channel offering is very much part of the mainstream.

The newcomer is online video. Despite Felix Baumgartner’s space jump pulling in a global live audience of eight million and smashing YouTube records for live streaming, for now reach is small and the primary benefit is the incremental frequency, particularly against younger viewers.

So it’s like the early 90s all over again – we have traditional TV, priced at a premium for its ability to deliver cover, and we have online video delivering targeted frequency, discounted to reduce the absolute cost of TV.

Except it isn’t because, in the UK, online video is priced at a premium to traditional TV. How did that happen? There is some evidence that pre-roll ads have higher recall levels – we can certainly target more effectively online, and Walker Media is working to understand the discrete audiences delivered through online video.

The premiums can be extreme. Against adults, ITV trades at about £6 cost per thousand compared with £28-30 for run-of-network on ITV Player; Sky is at £4 "offline" and £20-25 for run-of-network. YouTube trades at £18-24 CPT (30 seconds). Of course, online video becomes much more cost-effective for younger and upmarket audiences but, for mass delivery, it is charged at a significant premium.

Is this right? It may be instructive to look to the US, where greater investment, faster broadband and quicker roll-out of 4G long-term evolution has put it ahead of the UK in online video viewing – but not by much. Live TV ratings are down 8 per cent year on year, but for online video viewing, average daily uniques rose 43 per cent and videos viewed were up 45 per cent. With ad dollars following eyeballs, US online video ad revenues are set to hit $3.1 billion this year, or more than 5 per cent of the TV market – an incredible 47 per cent growth year on year. Hulu, one of the biggest players, trades at a cost per mille of around $30, compared with about $26 for NBC and $32 for Fox – a pretty similar price range despite the inherent benefits.

So why the CPT premium in the UK? The big difference (according to BrightRoll’s 2012 Video Advertising Report) is in the media buyers’ chosen suppliers. In the US, just 6.7 per cent of video inventory is bought from broadcasters, with 41 per cent bought from ad networks and 34 per cent from publishers. In the UK, these figures are 41 per cent, 22 per cent and 11 per cent respectively – an astonishing favouring of traditional broadcasters, which only deliver 5 per cent of all videos viewed and, we estimate, about 30 per cent of commercially viable video. All of this has no doubt held up prices through limited supply and inhibited overall growth, and YouTube can no doubt harden its rates based on the price we all pay for the quality content available from broadcasters.

We know consumer viewing behaviours are changing at a dramatic pace. And yet our screen-buying habits remain conservative, sticking with the suppliers we know (and have big agency deals with?) and presuming that long-form video is preferable to short. We can now target key audiences online using  first- and third-party data to measure discrete audiences, allowing us to deliver true online/offline gross rating points. And with Sky introducing AdSmart in 2013, the lines between online and offline TV will be forever blurred.

Our challenge as broadcast buyers is to break from the past at the rate in which consumers are doing so and to make 2013 the year in which screen TV media theory becomes best practice in effectiveness for advertisers. Traditional TV was always ultimately about mass and embracing some wastage; the same will apply to online video, if traded bravely.

The advertiser and all elements of the new TV ecosystem would benefit from a dramatic reduction in the price of the billions of "new" impressions. At a macro level, TV would become cheaper, opening it up further to new advertisers and extended use by existing advertisers and, at the same time, be more efficient in its ability to target.

Jon Horrocks is a managing partner at Walker Media