Video Killed the Radio Television Star

Every month, Industry Index gathers MadTech leaders to discuss trends, hot topics, and new technology in the industry. This month we asked what the future holds for OTT, Convergent TV and Audience Targeting for Video.

Can you relate to this statistic?

65% of traditional television subscribers watch a streaming service every day. What’s more: 17% of all paid-TV subscribers want to cancel their traditional subscriptions… AKA 17% are ‘Cord Cutters’. Ed Laczynski, CEO and Co-Founder of Zype kicked off Industry Index’s recent Roundtable with these data gems – and that was just the first 30 seconds.  

Moderator Jonathon Shaevitz posed an interesting idea: Has the industry entered the OTT and Convergent TV era without the correct terminology? And, without a clear lexicon, do we have a dilemma as the ecosystem plays catch up while running at a full sprint?  

“OTT is the world we are living in,” stated Myles O’Connell, SVP of Global Content at Complex Network. “Anything that’s not pipes-to-the-home is technically OTT – content being served digitally.”

Enabling a World that Demands Instant Gratification
Content, Original Series, Consumer Behavior

Bottom line: consumers are hungry for video. Chief Strategy Officer of VideoAmp, Jay Prasad explained, “Quality content has never been in more demand.”

Since the first television was introduced to the market there has been a constant stream of content being produced. That stream (read: raging river) continues today. What has changed is how content is generated, and the ways it’s being consumed. OTT bypasses traditional publishing methods, connecting content creators directly to consumers. Endless programing is easily accessible – every hour of every day.

Video-hungry audiences continue to look for the easiest paths of content consumption. This has moved traditional, linear advertising to embrace the digital revolution (it always comes back to the money.) Prasad explained, “Netflix’ budget for original content this year is $6B, versus NBCUniversal’s $2B.” However, O’Connell interjected that, yes, the amount of money Netflix is spending is massive, but “geared towards a global audience.” NBCUniversal is on a national basis.

Though the original Netflix model looked a bit different (who doesn’t remember returning scratched DVDs in those little paper sleeves), they shifted some time ago to feeding the content-starved beast (who doesn’t remember waiting a whole WEEK for the next episode?).  Not only has OTT and Convergent TV removed delivery friction, it has changed how content gets from creator to audience. ‘Original Series’ are encouraged and absolutely welcomed by the consumers. The push for original content now allows platforms to scale by keeping audiences’ attentions. Melissa Rosenthal, EVP of Cheddar, addressed this: “You really have to get creative and strategic with how you are pulling together all of these videos to engage users by grabbing and keeping their attention.”

As OTT and Convergent TV platforms are rapidly scaling, pressure is being put on large, traditional networks. Digital brands are creating streaming networks that are, “narrative-driven, understanding you cannot just string videos together and think it’s a network,” Rosenthal explained.

Bye, Bye Bundles
Digital vs. Linear, Skinny Bundles

“There is a last ditch effort to grab all the linear dollars,” Adam Helfgott, CEO of MadHive, offered. Collectively, the Roundtable agreed that we are seeing linear and digital networks starting to merge, and the buying process isn’t going to be viewed as separate.

The ecosystem has accepted the challenge to produce better content. More money continues to enter digitally and linearly. Like Biggie said… more money, more problems. Think of it like this — you’re Comcast, laying all the pipes to move the content from publisher to consumer. Here come Netflix/Amazon/Hulu, making more money than you – through your pipes. Of course you want to charge the digital networks more. Prasad explained that the OTT and Convergent TV platforms are, “…getting rich off large network sweat, so the traditional networks want to level the playing field a bit.”

But how?

The days of large cable bundles are nearly past. “There are 190 channels in a bundle,” O’Connell explained, “and most people who subscribe to cable only watch 17 channels. The breakup of the bundle is going to happen, it’s just a question of when.” First, there were ‘Cord-Cutters.’ Now, there is a younger generation: ‘Cord Nevers’. This group will most likely never pay for a large-bundle cable subscription. 

O’Connell continues, “I think the bundle itself is getting a lot smaller, that’s why I think a lot of digital publishers are looking to get into video… because where does the advertising go? Where do the subscription fees go? It goes somewhere… it’s a business and there is just as much demand for high quality content.” Around the Roundtable, a flurry of conversation ensued around the idea that digital publishers are talking about bundling their content on a streaming interface.

BUT! There is still a need for a bundle when it comes to live TV. Prasad explained, “The main value of linear, and a huge part of the skinny bundles, is if you don’t watch something live (like sports or news) you most likely aren’t going to watch it later on-demand… linear is going to keep their focus on programming that is live, and everything else – there is going to be a push for on-demand.”

But O’Connell asked what happens when consumers, “…have their broadband package, and their $40 skinny bundle, and Netflix or Hulu, or whatever it is? Then you are looking at having a big bundle again.”

Blurred Lines
Traditional, Subscription, and Hybrid Models & the Fragmented Audiences Who Love Them

So, there’s the traditional model, which could waste away (or at least slim way down). But, that doesn’t even scratch the surface. The industry has entered an uncharted frontier – digital. Digital as far as the eye can see…

The digital world has the subscription model (winner: Netflix). Plenty of room in the middle of the pack, though. Laczynski explained that, “Vertical networks are making enough money on subscribers, but they are not making enough money on ads.”

But wait, there’s more! Linear + digital = hybrid model, which Hulu and the skinny services (like Sling TV) call home. Prasad stated, “The hybrid approach will continue to grow. It reduces the ad loads a little bit by making sure the targeting is good and the user experience is high.”

What’s more: The blurred lines of digital programming models, and the transition away from cable bundles, has fragmented audiences, O’Connell believes. This fragmentation is a new lens for advertisers. “Brands are starting to realize they are paying for content, one way or another,” Laczynski explains, “so they might as well embed themselves in the content. To do that you have to allow yourself to be exposed to 10, 20, 30, 40 different distribution platforms.”

Target Practice
Ad Buy Bullseyes?

Although the consumer space may seem shattered, advertisers are beginning to understand how to capitalize on audience targeting capabilities offered by OTT and Convergent TV. Prasad explained that, “Even though ratings may be down on a linear buy, viewership is up across all these different experiences, so we are going to sell access to our audiences not just as a primetime slate — and that’s working.”

But, the OTT and Convergent TV industry must grasp that change may be implemented slowly and with some hesitation. Helfgott offered, “It’s going to take a long time to change the business model.  People are used to doing things one way, [this] is a shift in the way the industry thinks.”

But to Rosenthal, it seems foolish to not jump in head-first and embrace the power of audience targeting. “We are living in a world where you know exactly who you are targeting, and addressable TV as a whole is going to be shifting. It just doesn’t make sense to not target, it just seems like you are kind of throwing darts.” There has always been a need to understand targeting, however, targeting unto itself isn’t a new idea. What is new is the hunger from consumers to have a constant stream of quality content.

“What is changing is consumption,” O’Connell explained, “there are so many ways to consume content, there’s still tons and tons of power in advertising so there are a lot of opportunities.” Ads want to be housed within quality content, to and – to top it all off – audiences are able to consume content across multiple screens.

A Whole New World
Cross Screen Strategy & the Need for a New Currency

How many screens do you consume content on? One… two… three or more? Shaevitz posed this question to both Roundtable participants and attendees. The majority identified with three or more screens. Cross-screen targeting, it’s no longer a ‘should’ but a ‘must.’ Prasad explained, “There are more opportunities that different platforms offer, and advertisers are seeing the possibilities of how they can target their clientele and what different platforms can do for brand awareness.”

Old habits die hard – the industry at large is used to doing things one way, even though times are changing… or have changed. Will GRP win the game, since that’s what everyone is familiar with? Likely not, but OTT/Convergent TV is missing one thing: A cross-platform currency. “There is now a new denominator of what advertisers are basing ad buys off of, and that’s targeting,” Prasad stated. “Even when you move into cross-screen, there is an introduction of measurement, and that is not going to be a GRP.”

Increasing advertising opportunities are setting the bar higher for brands. OTT and Convergent TV have opened up a world of audience targeting possibilities. Have we entered into a new era where ads will no longer feel like a waste of time; just background noise? If so, and we think yes, there needs to be trust on all fronts, from brands to publishers and vice versa. Trust will propel inventory, even while the industry continues to get its sea legs.

Prasad explained after growing pains presented in Q4, “We couldn’t fill all the OTT demand for our advertisers and probably left several billion dollars on the table just because there wasn’t enough inventory, which was painful… Running through programmatic pipes is a process of cross-screen video.”

Why You Got To Be Shady?
Fraud

“Digital has shot itself in the foot in the last couple of years by having an ecosystem with a lot of low quality or fraudulent advertising practices. Therefore, advertisers are moving towards safety, and safety has worked for 50+ years… television,” Prasad stated.

There is a larger issue, which goes beyond the fraud epidemic. Helfgott explained, “Because linear and the big networks are viewed as ‘safe’ the big networks are realizing that they could be selling ad buys for more money… capitalizing on the ‘safety’ aspect.”

Naturally, OTT/Convergent TV wants to keep the ad revenue in their sectors. However, and beyond the money, the issue of fraud raises questions of responsibility in moderating the shade that’s being thrown around. There is a call for platforms to start taking more responsibility.

Rosenthal made this point very clear: “As the industry increasingly relies on social distribution, the platforms have to do a better job at weeding out the crap.”

How’s The View Up There?
Facebook, Google, and… Netflix

It’s interesting that platforms aren’t putting a stop to fraud, and at the same time, the OTT and Convergent TV sectors are living in Facebook’s, Google’s, and Netflix’s shadows. It feels as if these three powerhouses – and we’re going out on a limb here – make their own rules.

The water is murky, and Facebook is bulldozing with all its powerhouse glory. Helfgott thinks that, “Facebook gets a ton of credit where it’s not really due because they become the last click from distribution point of view.” This means that brands’ ad impressions are getting lost through Facebook as a distribution platform. This is important for agencies to see.

Now, Facebook is entering the OTT space… a murmur ran through the Roundtable room.

Let’s not forget that we’re in the glory days of Netflix, too. There’s no doubt that they’ve set the pace for running a subscription-based model, but will they finally turn a profit?

The Road Ahead

OTT, Convergent TV and Audience Targeting has already changed the video consumption industry.

‘Cord Cutters’ are moving toward a firm embrace of the streaming world, and ‘Cord Nevers’ will never know the smell of a fresh TV Guide wafting from the mailbox.

Does it seem like we are too far down the rabbit hole, and there’s no turning back now? You’re right!  But there is still a long journey ahead. There are many questions yet unasked; many variables to be sorted out. Laczynski explained, “Things are happening pretty fast and we are in the middle of it… there’s this whole world that is opening up, and it will continue to change over the next decade as behaviors change.”

There’s one thing we know: Without OTT/Convergent TV, a whole weekend wouldn’t be dedicated to an entire series, or two… There wouldn’t be a need to click <YES> To the ‘Are You Still Watching?’ prompt… We couldn’t ‘Netflix and Chill’! We also know that without Audience Targeting, those 30 second spots would still feel like a waste of time rather than a moving experience, with brands speaking to us on a deeply personal level. How would they know their creative is exactly-what-we-needed?

Don’t Touch that Dial

How does OTT, Convergent TV, and Audience Targeting for Video impact your streaming behaviors? We want to hear from you. Binging on Season 5 of “House of Cards” can wait.

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Author: Ayla Quinn

Posted in Convergent TV, OTT and tagged , , .