Commentary
The 80/20 Advertising Economy
- by Justin Evans , August 8, 2014
As we collectively prepare for a future that involves programmatic TV, it may be useful to try and be accurate about how much TV media is likely to be traded programmatically, versus through traditional means. What is the potential size of the programmatic TV market?
The concept of programmatic comes from digital advertising, so digital is the obvious (and only) example of an evolved programmatic media marketplace. Today, according to eMarketer, 22% of digital display advertising (inclusive of broadband video, banners, rich media) is run programmatically. According to my sophisticated analysis, this means 78% of digital ads are placed in the traditional manner. For the sake of simplicity, let’s call this an 80/20 split in favor of traditional media in digital display.
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Could the TV industry support such a split? With all segments of TV advertising contributing — network, cable, spot, and syndication — and based on an estimated $74 billion TV market in 2013, a 20% slice represents a potential $15 billion programmatic market. This would, theoretically, coexist with a $59 billion traditional TV market.
Assuming such a split were possible, which campaigns would best be suited to programmatic methods, and which to traditional?
Again, digital is our reference point. To illustrate the point I will amalgamate market feedback I’ve heard from various brands about how they allocate their digital budgets between traditional and programmatic. Naturally, strategies vary by industry. Here is an example of feedback from a luxury auto brand: “The majority of my dollars pursue brand goals,” our client amagalm says. “I’m going to be in endemic sites like KBB and Edmunds. I’ll advertise on tech, news, and luxury-themed sites to hit high-income males. Then I’ll go for younger-skewing media like Pandora for my emerging customers.
“With these publishers, I’m getting splashy executions and content integration. They’re creating cross-platform packages for me. The wrapper they’re putting around my messaging is great for the brand. This content is highly visual, very tightly controlled by me, and it screams luxury.”
What marketing goals are you pursuing with your programmatic budget?
“For us, that’s lower funnel. We’re driving people to convert online. We’re using data to find people who will configure a car or sign up for a test drive online. Here, we measure success tightly. We monitor the leads generated, and we reward the platforms that perform with more spend.”
Sounds pretty direct-response. What about audience delivery? Is that a KPI too?
“We are now using broadband video to deliver our target audience. We’ll measure the GRPs — that will be our success metric — but we’re not so much concerned with what the context is. So it can be travel or sports or whatever, as long as it’s premium, and as long as it hits the audience guarantee.”
Our luxury auto amalgam has expressed the general principles of traditional vs. programmatic. Traditional media wraps a brand in flattering context like a good suit; programmatic is the sweatpants and sneakers that deliver the KPIs, both performance and audience-delivery metrics.
A final question — and perhaps the most relevant— is: How long will it take to shift dollars from traditional to programmatic? Will the $15 billion move overnight?
Again, we may look to digital for precedent. The start of digital programmatic can be tracked to 2004, when the key behavioral and contextual ad networks announced their beginnings. Which means hitting that 20% mark took 10 years.
TV has a culture dating back to the 1930s. It has had notable success of late retaining both audiences and advertising share. Arguably the urgency to change is faint compared to what digital experienced in its 10-year journey. Digital was fueled by massive infusions of VC cash, all the talent of Silicon Valley and Alley, and it was largely unencumbered by legacy businesses (mainly print).
By this logic, the trip to 20% will be a long one for TV. The wild-card factor that might accelerate the journey for TV is the presence of the fully developed programmatic model — and, of course, the $15 billion prize. That should be enough to attract anyone’s attention.
What gets lost in all of these discussions is the distinction between "branding" and "promotional" ad dollars. The two functions, which supposedly work in tandem, are usually handled by separate agencies and, often, the promotion guys work for the "sales" folks while the branding guys work for the client's"marketing" people. In theory, top management sees to it that the two work in sync. One of the reasons why the big agencies seem to be jumping on the programmatic bandwagon is that it opens up a gigantic new billings opportunity for them. So far, they have been limited to the branding arena but with programmatic "trading desks" they can go after those hefty promotional budgets which have fueled the Internet's impressive ad revenue growth. I seriously doubt whether anyone in charge at the major branding agencies is even thinking about having TV time, which is almost entirely used for branding campaigns, bought by computers. They just want to get their paws on those promotional budgets that once went to direct mail, the yellow pages, discount offers, etc. and are now all over the Internet.
Once again, my sympathies are with Ed's line of analysis and reasoning. I appreciate the attractiveness of the Pareto Principle (aka "the 80–20 rule, the law of the vital few, and the principle of factor sparsity"). In essence, it hypothesizes that roughly 80% of the effects come from 20% of the causes. This Principle holds in many situations and environments, but it is not a universal principle. Hence, it just will not be so here. Ed is correct. Onwards and upwards.