Commentary
Why TV Ad Spend Will Grow More Than Digital Spend In The Next Five Years
- by Dave Morgan , Featured Contributor, January 16, 2014
At the closing panel of Gridley & Company’s 13th Annual Marketing, Internet, Financial Technology and Outsourcing Services Conference, -- one of my favorite ad tech banking conferences, held Tuesday in New York -- I predicted that television advertising spend in the U.S. would grow more in real dollars than spend on video ads on the Web, mobile and over-the-top combined, every year for the next five years. To make sure that the digitally biased audience knew that I was serious about my prediction, I said if I was wrong, I would pay for the conference cocktail party after any year in which I wasn’t right.
The crowd, a bit taken back by my bet, didn’t agree with me (nor did my fellow panelists). I’m quite confident I won’t be paying for those drinks at any time between now and 2019. Here’s why:
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TV advertising and audiences are not shrinking. The average American watches more than 34 hours of TV programming every week. That number has gone up, not down, over the past 20 years, and has only begun to show signs of plateauing over the past two years. Time on the Internet and tablets and mobile devices has gone up, but TV usage hasn’t gone down. That’s why total TV ad spend has been growing between 4% to 8% per year -- $3.5 billion to 4 billion -- over the past five years, and is expected to grow similarly over the next five years. According to eMarketer, U.S. digital video ad spend has been growing fast, but only by $1 billion to $2 billion per year.
TV advertising works. Sight, sound and motion on 60-inch, high-definition screens deliver results every day for brands like McDonald’s, Coca-Cola, Walmart, State Farm, Kellogg’s and Ford. Audiences are massive. They are passive audiences. And they show up in unmatched numbers predictably every day. Those ads deliver results at the cash register. That’s why the TV industry spends $35 billion per year in new investments in content.
Demand outstrips supply. While lots of marketers and agencies have talked for years about rotating their ad spend out of TV, total TV ad spend has increased every year but one for the past 10 years. If some are pulling out, more are jumping in. Marketers in categories with a "moveable purchase," like quick service restaurants, retail, automotive, insurance, movies, know that if they lose share of voice on TV to their competitors, they will lose sales and market share (and stock price and perhaps their jobs). The only other place that happens in the ad business today is search. That’s why the upfront works. Until that changes, TV ad spend will keep going up.
TV ads are getting better. TV has always been fully electronic, but only now is it fully digital. Today, TVs have computers for set-top boxes, many TVs are connected to the Internet, set-top-box viewing data is widely available for measurement and targeting, and lots of media folks who were trained in the online world are looking at TV and starting to apply Web-like ad approaches to TV.
TV and Internet Protocol video aren’t likely to converge until around 2020. As much as many of us believe we will eventually have a converged video world, where all video programming on TV is delivered over IP networks and is available on-demand with dynamic, addressable ads, that reality is still a long way away. One-third of America (100+ million people) does not have broadband in the home. Netflix on Saturday and Sunday nights in Manhattan buffers and slows down, and wouldn’t even rate as a top ten TV network. We still have a ways to go.
Digital video still coming of age. Video over the Internet and on mobile devices has an extraordinary future, but it still has a lot of growing to do. As compared to TV, it is still subscale. There is a limited amount of premium content ad avails, and TV companies control much of that. It has emerging fraud issues, not unlike its banner ad brethren. It’s just getting a more mature measurement framework in place with products like Nielsen’s OCR and ComScore’s vCE.
Lots will change in this market over the next 10 years, but probably not as much over the next five as many would like to believe. The law of large numbers and slow and steady growth is on my side on this bet. I feel very good about winning over the next five years. After that, I’m likely to take the other side of the bet. What do you think?
Absolutely correct. Don't let the fuzzy lines of video outside of TV world confuse you. Everyone trying to figure out how to make everything work as well as TV. Sometimes it just doesn't.
Dave - you know how much I love you. Please invite me to the receptions for the next 5 years so I can enjoy drinks on you, my friend. This was a sneaky piece...but I'll let the folks on the digital video side rebut as this is their bread and butter...and besides, you're probably right :)
Dave,
Because I'm a digital guy, and not a TV guy, I think you are wrong on this but not for any of the things you outlined, but for the reason you neglected.
Two things you did not mention, are the impact of ad skipping devices and the impact of rapid changes to video distribution (what are you defining as TV vs. Digital exactly)?
As much as I'd like to cut back on mind numbing television, I too am hooked and I watch a fair bit of TV. But most of my TV today is via Apple TV or Netflix (are you calling that TV or digital?).
I don't watch commercials on TV any more (in fact I sometime have to YouTube a commercial if something is buzzing in the industry that I want to see).
When I do watch live TV (like football) I Tivo it and get a head start. I watch the 11 minutes of live ball time and 60 minutes of clock time in about 45 minutes.
Advertisers will pick up the reality that their ads are not getting seen as much and the ROI of TV will decline over time. Ad skipping will impact digital as well, but I don't think as rapidly. Cable companies hand out ad skipping tools with every set top box.
What are you thoughts on ad skipping and shifts in video distribution (Netflix, Apple TV, Google Chromecast, etc...)?
Joseph, I love you too, but the reality is that TV ad spend growth is not mutually exclusive with digital growth, or digital video growth, and that reality is likely to keep playing out for the next five years. However, as the infamous Mary Meeker "time spent/money spent" slide makes clear, TV is now over-invested in, Print and radio are though, and will lose as digital grows. TV will keep growing though, until its audiences don't.
RJ, ad skipping has been available on a large number of TV's for years and it hasn't had that appreciable of an impact on ad viewership - less than 5% of all TV ads are skipped today, number that has been constant for a number of years. Netflix is replacing Blockbuster and the viewing of pre-recorded video. TV viewing has continued to grow, or at least stay flat, in spite of Netflix growth. The majority of the on-demand shows on Netflix, Apple TV and Amazon Prime don't carry ads (except for the on-demand shows from current TV shows) and thus won't be counted in TV ad spend. TV ad spend only includes ads on Nielsen measured shows within the C3 window (and possibly ads beyond the C3 window when specially negotiated). All of the things you talk about have the potential to eventually disrupt TV ad viewing and effectiveness in a big way over time. However, they haven't yet, and many have been around for quite some time. TV advertising is not yet replaceable for most of the large brand advertisers who need to reach a lot of people in a very impactful way very fast and with a certain degree of targeting. Judge Judy delivers more ad minutes against US adults in a half hour every day than YouTube. Some day that will change. I am sure of it; but not yet.
Very clever Dave. You said "would grow more in real dollars" which I totally agree with. Year over year growth rates in digital will exceed TV growth rates, but you won't be buying drinks on real dollars. So clever, you are.
Dave,
You are right: I had to re-read your opening salvo a few times. I assume you are talking in total ad dollars and not rates of growth? From TV's significant base I expect you are right. But video's astronomical rates of growth (far outstripping tv) will continue to be strong.
I'll come and join you for cocktails, I doubt you'll have to buy them.
Yes David and Anthony. There is no question that digital video will grow faster over the next few years, but I made the point (and bet) on TV ad business's real growth because so many people forget how big it is and the fact that it is still growing.
In real dollars yes as it is over invested in. The youth of today dont watch the TV set and watch mainly on catch up and skippable DVR. The pure laws of demographics will catch up to all of this eventually and more $ will move to internet based TV watching. The question is when is the tipping point.
I could not agree more with this article and comments. TV has been the dominant force in media and marketing. The biggest risk for the medium had been the lack of accountability and engagement from the TV. Therefore, TV dollars shifted to digital - a medium proven to deliver results.
Smart TV's have become more ubiquitous and set top boxes are improving, TV will have the accountability and engagement required to deliver on "digital" like goals.
Those in doubt need only to look at iTV campaign results to see that these results dwarf those of digital media campaigns.
The future of the 30 second spot is an interactive or advanced TV 30 second spot and the time is now.
Dave's a smart guy, always with a realistic point of view. I'm with Dave and I don't even drink.
Gary, I agree. It is all about when the tipping point happens. Incredibly, even teens spend more time watching multi-channel TV on TV devices than they do digital/streaming video. I believe that the explosion of tablets and robust home wifi, TV Everywhere services and devices like Chromecast will have big impacts, but probably not fully flipping ad spend until the end of this decade. To borrow from Reed Hastings, TV's opportunity is to become like the web before web video advertising becomes like TV.
Dave, your case for a quantitative conclusion seems mostly qualitative. And five years is an eternity in this arena. I'm not saying you are wrong, mind you...just sayin'. It is funny how at so many conferences it seems like TV is forgotten...attendees seem to think it's dead already. Not quite, as Mr. Twain might say.
I don't know Dave from a bar of soap - but I do know that he's on the money. Media owners bank 'real' dollars and not 'higher growth rate' dollars. That's not 'being clever' that is just being a realist. Kudos on a brave article.
The other thing is, if TV is going to become more data/targeting-driven, and programmatic buying catches on, I think the question by 2019 is going to be "what difference does it make?"...this will be a semantic distinction at that point. TV is the best screen - but that's what it is, a screen.
I made this same point while chatting with some young folks before a tech presentation last night. Funny that so many perceive the internet has wiped out all traditional marketing, when in fact the biggest ad spend is still on TV.
Completely agree with Dave. TV viewing is up, and demand for video commercials is up across the board (both regular TV and online viewing). And the digital video dollars are miniscule compared with broadcast. It's a numbers game where people confuse high-growth with "big." Even in the next presidential election, when nearly $10 billion will be spent on advertising, digital video will dwarf broadcast video by a factor of about 1 to 20. Dave is spot on, so don't count on free drinks in his timeframe.
I think what's happened here is, you made a statement about absolute dollar growth, but people internalized it as a % growth. Digital video will indeed grow by a greater percent YOY-- but traditional TV will actually grow by a greater dollar amount, because the base is so much larger.
I agree Josh, but you could have a nascent medium that bills (say) $10m that grows to $30m meaning it has had 300% growth! But it's still a tiddler.
The numbers are solidly on Dave's side here. With that said, I think the most challenging questions we'll face in the future are simple, but jugular ones. The first is "what is TV?" What content, from which providers, over what time span, on which screens, with what viewability criteria constitute TV? I recently bought a smart TV and now have at least 5 different ways to watch the same things on demand. TV was once an idiot box, but at least it was all in one box. Now it's all over the place. The second question is "what is an audience?" In addition to audience, time and device fragmentation we have attention fragmentation splintered across many screens at once. Is an audience an audience if it's entirely incapable of paying attention? I agree with Dave's prognosis, but also believe the changes affecting TV are accelerating fast. I predict more will change in the next 10 years than changed in the past 20.
You all miss the one and only real reason TV continues to dominate, that being that, despite the growing fragmentation, it continues to be the reach devil we know, and scalable audience reach is the only non-discretionary line item in any savvy brand's media budget -- and the big money is in the branding bucks, period. The more worthless impressions the Internet spawns, the less the TV guys have to worry about.
History of the past decade or so shows it is a bad idea to bet against Dave Morgan.
While there are not too many of us who want to wait until 2020 for the convergence you mention, it is hard to argue with any of the reasons that you make in your remarks. There are certainly signs that convergence is in play, but full adoption is slow in coming. It is refreshing to see this public recognition of real dollar growth rather than dealing only with percent growth, where higher numbers from a low base can too often create an unrealistic buzz and send media plans in the wrong direction. I’m with Dave on this.
At first reading, I thought this was one of those 'provocative just to be provocative' type pieces that seem so prevalent these days. Instead, after reading a few more times like Anthony Moller, it seems more about just moving the conversation forward, and a more measured observation.
A couple of items I'd note:
-With TV alone at about $73-75B/yr, vs Digital overall at about $2-3b/yr [only a part of which is for Video], the dollar numbers are outsized to the point that only growth % would be notable anyway, for now.
-Interesting second point, in which 'passive audiences' equates to 'advertising works'? This is esp. true, coming Dave as you do from the 'interactive' side, with interests clearly vested there.
Not to say it does NOT work, but did I miss your point there?
Good article/commentary either way.
Ken, my point about the passivity of TV audiences is one of the media's strengths, I believe. Incredibly, even when people say they don't watch ads on TV, attribution sales data proves them wrong. TV has an unusual ability to keep people attention. It might have something to do with the fact that folks give themselves into it. I believe that having attentive, passive audiences is a good thing in media.
Dave the "real" question is how much of this new growth of TV ad spend will go to the legacy broadcasters and how much will go to Google.
The answer lies with a simple truth: innovators and innovation create and keep the growth.
Viewers attention spans, already so exhausted by the onslaught of social media, traditional media, and OOH messaging in general, might mean that the dumb tv is the only guilty pleasure a poor soul can relax to -without having to work for the reward
But the absolute cost being charged for that pleasure, is forcing its (future) user base into this change, and that economic reality (more than the technology itself), will force the point...as the "retrans" arms race is only getting started.