“As consumers enjoy next-generation TV whenever and wherever they want, what will happen to TV advertising?”
Next-generation TV is disrupting the TV market by offering new ways of delivering TV content and new devices on which to view that content. As a result, the TV advertising market is fragmenting and may be decreasing in value as the efficiency of traditional methods of TV advertising is questioned.
What does this mean for the future of TV advertising?
From the consumer’s perspective, next-generation TV offers viewers increasing opportunities to watch TV whenever and wherever they want. Figure 1 shows a selection of current, next-generation TV options.
Figure 1: Examples of next-generation TV options [Source: Analysys Mason]
From a commercial perspective, next-generation TV is often identified as having the potential for substantial growth. However, there is still uncertainty over who is best placed to benefit from this growth, and how to monetise it – an area particularly under discussion is advertising.
Traditionally, advertising spots at “prime time”, during popular programmes or during major sporting events, command a premium price. Advertisers often choose to air their adverts at particular times to target a specific demographic. However, next-generation TV (especially non-linear viewing) undermines the value attached to particular time slots, although the incremental value associated with popular programmes or sporting events still remains. This issue is further complicated by both the technical capability to skip adverts during offline playback and viewers’ expectations that video-on-demand content often comes without advertising.
As such, next-generation TV raises a number of concerns for advertisers but also offers clear opportunities for both advertisers and next-generation TV providers. For example, greater interactivity (if a return path exists) allows the delivery of adverts that are more closely aligned to a viewer’s interests. Adverts could also be targeted at groups of viewers based on their historical viewing or browsing habits, with the network operator or ISP managing the targeting and insertion of adverts. Hulu in the USA has used the ability to target certain demographics to command greater advertising revenue than that of premium pay TV. However, this solution is not as straightforward as it may sound – there have been significant privacy concerns raised over this type of approach.
Advertising options are less attractive, though, if the consumer is watching content offline. In this scenario, more intrusive forms of advertising are likely to emerge, such as pre-roll ads, banner ads or product placement/brand advertising (some brands are even part-funding the creation of new programmes as a new business model). Product placement especially faces barriers in some markets – for example, there are regulatory restrictions surrounding product placement in the UK.
In order to take advantage of the fragmenting TV advertising market and continue to effectively market to consumers, it is clear that advertisers and next-generation TV providers, particularly those in the telecoms sector, need to collaborate, although the form of any collaboration is not yet clear.
Analysys Mason offers a range of services spanning the whole business development cycle including strategy advice and planning support for companies adapting to fast-changing markets.
For more information please contact Paul Sumner, Senior Manager, Analysys Mason at paul.sumner@analysysmason.com