"This streamed program is brought to you by..."
It wasn't even a matter of time; it was always an inevitability.
Two weeks ago, Disney announced that by the end of 2022 they would offer a lower-cost subscription option supported by advertising. Members of the business punditry immediately started loudly stroking their chins asking if perhaps this was a move to gin up subscriptions to mitigate foreseeable slowdown in current-offering subscriber growth. Wall Street's reaction to the news, as is so often the case with anything about advertising these days, was largely "meh."1 When it launched HBO Max said they would do the same eventually. Some streaming services that have been ad supported since their beginning are pulling down decent coin and yet their corporate parents remain unrewarded by the market.2
Why the move to ad supported packages if investors remain unmoved? Why start putting ads in streaming programming when Netflix has conditioned us all to expect endless binging completely commercial free?
Investors have always been a fickle bunch, and with two generations of ad supported dotcommery yielding riches beyond the dreams of avarice for only the very few, enthusiasm is hard to come by. After all, how long or how often can one remain super pumped? But the indifference betrays a narrow and maybe confused view of the future of advertising. Media owners have to start putting ads in streaming, to grow audiences and to keep revenue flowing.
With more audiences moving to streamed content, they aren't moving only to streaming services that provide the same ad supported content they were getting in linear. Legacy media companies that hold growing positions in the streaming ecosystem have to find ways to translate the audiences leaving linear viewing into revenue gains in streaming, because that migration represents revenue lost from the linear end. But understand that migration isn't like for like. A hundred people watching ABC's "a million little things" aren't all walking away from linear to watch it streamed. But enough might be so that revenue from ads for the show broadcast by traditional means will go down (fewer people watching means fewer impressions/ratings, the currency of advertising) and what's lost is not picked up directly from that show being streamed. It needs to be picked up from programming on another source in the portfolio. Like an ad supported version of Disney+ that brings in both subscription income in addition to revenue from ads run in "The Mandalorian" served to that lower-cost sub. (From the beginning, original programming on Disney+ is cut for, and has run times consistent with, accommodating ads).
But there's not enough room for the entirety of the TV advertising marketplace to shove into the streaming space. Capacity is one of the biggest pain points for streaming right now. Though the eyeballs are there, the space for the ads isn't. Right now, the technology for buying and placing ads in streamed content isn't as good as buyers of the inventory want it to be, either. Picking audiences and targeting criteria in the same way media buyers do when buying digital is what the clients and buy siders would like, but it isn't quite there, yet (though it's moving in that direction).
Reliable audience sizes in linear are shrinking, and ad loads in streaming are limited. There aren't as many people watching on traditional TV, but there isn't enough ad inventory in streaming. As the market evolves towards equilibrium, prices for TV/video are only going to remain high and go up. This means something other than a good price is going to be what advertisers look for from their advertising. And what that is has to be outcomes. Provable performance. This will differentiate ad inventory and help justify its costs. The available platforms for buying TV/video in aggregate are going to need to offer this. Established programmatic platforms like The Trade Desk or Amobee claim to provide this related to CTV and OTT. Platforms like Simulmedia's TV+ extend the capability to linear.
But a less desirable byproduct of this evolution is more frequency. More frequency when there are fewer places for ads sounds counterintuitive. Smaller audiences watching ad supported TV/video means that communication delivery goals against which television is bought (i.e., ratings/impressions) are mapped onto fewer people. The formula to produce those impressions is persons-times-exposure, or reach X frequency. If one number is smaller, the other has to be bigger. The period of transition from ad loads in linear to more ad loads in streaming means constrained reach and increased frequency. Better audience definitions and their quantification will help (and is itself a major bugbear), but it will only help some.
An even more undesirable byproduct of this is fraud (intentional misrepresentation and misdirection of ad sources and delivery) and fallacy (unintentional misrepresentation of ad sources and delivery). Without getting this under control, the whole Megillah gets relegated to the bottom of the media mix.3
Engineering synchronized reach across asynchronous audience segments is the biggest challenge facing advertisers in this environment. For a period, some people in those audiences are going to be frustratingly elusive. And some of those people are, for a time, going to be those advertisers often feel they want the most; namely, upscale households with the disposable income to afford commercial-free levels of streaming services (I would argue at another time and place that this is a misguided objective, but right now I'll drown of fatigue swimming against the currents of conventional wisdom). That's why focus on planning processes and the tools they're built on is so important now. To properly de-risk buying means starting out as close as possible to the goal as possible, rather than paying the least and hoping the system will work its way towards success with the right media and the right audiences. Increased inventory availability in streaming will alleviate some of the pressure, but it's going to take a while. Finding and catching the most elusive audience segments and their members when they ARE watching when they CAN be reached is more difficult -- and more important -- than ever.
