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Why TV Operators Have To Consider Targeted TV Advertising As Their Future Revenue Source

For Pay-TV operators looking at challenging situations made worse by the Covid-19 pandemic, Targeted TV Advertising holds a lot of promise.

targeted advertising

Even before we got to the current Covid-19 crisis, the TV industry was facing a looming change and demolished boundaries between Pay-TV operators, OTT providers and broadcasters. Looking at the Pay-TV operators, as 2020 dawned they were facing a wide range of interlinked challenges from cord cutting in the US and cord shaving in Europe, to increasing competition from agile competitors and SVOD, a rise in content rights prices coupled with the loss of exclusive content, growing price competition and a decreasing share of viewing time and advertiser revenue. 

Covid-19 has just intensified the pressure, accelerating some trends to the point where it has become difficult to predict the shape of the industry at the end of the year. Fortunately, it appears that Targeted TV advertising may ease at least some of these problems: 

Back in 2017, we saw a significant moment where the spending on global digital ads was greater than that of traditional TV advertising. And digital has only grown more influential since.

But with Targeted TV Advertising, broadcasters and Pay-TV operators joining forces can now bring TV advertising back to its glory days, with more efficient and relevant messaging via the superior medium of the larger TV screen. They can welcome onboard new advertisers who are keen to reach the highly segmented audiences that were out of reach via traditional TV advertising and start to get back some of the revenue that has been lost to digital and more.

Targeted TV Advertising web banner

Why Targeted Advertising?

At its core, Targeted Advertising (TA) is simply the process of serving different adverts to different viewers, based on their interests. Advertisers today are able to refine the granularity of their audience segmentation to an impressive degree. TV Audiences can now be chosen not only by location, but by a growing number of attributes such as life stage, pet ownership, household composition and many more.

Of course, the processing of such data analytics has become a matter of some concern in recent years, with initiatives such as Europe’s GDPR leading the way in a global trend that is slowly promoting the importance of protecting the privacy of individuals worldwide. 

As we’ve written recently though, one can use AI  techniques on first party TV data to extract relevant granular segmentation. Combined with the TV operators ensuring that none of their audience Personal Identifying Information (PII) is shared with external providers, this might be the answer to fully complying with privacy-related regulatory and legislation. 

Targeted Advertising (TA) is an important technology for operators looking at the challenges ahead, as it offers them another form of monetization over and above subscription. It also helps them implement the increasingly popular SVOD/AVOD double play, and address the viewers’ need to minimise costs in the packed SVOD ecosystem; viewers can be offered progressive tiers of declining ad load as they increase their monthly payments, the so-called Freemium to Premium route. This has been hugely successful as shown by Hulu and, in audio streaming, by Spotify. 

The additional benefits that targeted advertising brings to viewers can be illustrated by a five-year long survey conducted by Sky on its own AdSmart solution’s effectiveness. This found that Targeted TV Advertising.

  • Reduced channel switching by 48% when addressable adverts were in the first three positions in a break
  • Increased ad engagement by 35%

It’s also worth pointing out another highly significant statistic: 74% of advertisers using it are new to TV. This represents a significant potential new revenue stream for Pay-TV operators and broadcasters aspiring to increase their market reach.

Along Came Covid-19

There is a highly topical reason for launching TA now, and it relates to the ongoing Covid-19 pandemic: While there are perhaps the first signs emerging that viewing figures are finally starting to level off, survey after survey reveals a huge worldwide spike in audience content consumption via SVOD and AVOD.

Streaming in South East Asia markets reached 58 billion minutes on 11 April, up 60% on 20 January; and Nielsen found that lockdown orders could lead to as much as a 60% increase in the amount of content viewed.

However, the problem faced by many SVOD providers is that the increased usage cost on their networks is dramatically shrinking their ARPU. More usage doesn’t create more revenue, unlike the ad-based model, but only increases the network and service operation cost.

Targeted TV Advertising brings a way of lessening that fatigue significantly. The premium rate that operators and broadcasters can charge for targeted commercials, not to mention the increasing number of companies that want to try television advertising for the first time, means that they can maintain a lower ad load, be more effective with it, and increase profits. This way, revenue is increased while audiences are happier and more engaged than ever. 

What’s more, it should be pointed out that Targeted TV Advertising has also a return rate of around 70% amongst advertisers.

Why Targeted TV Advertising is a Win-Win Situation

For the Pay-TV sector, this is a perfect solution: Investment is low, returns are high, and it significantly assists them in further monetizing one of the most important things they possess — their customers’ data. 

There are currently three prime routes for monetization when it comes to Pay-TV:

  • Transactions
  • Advertising 
  • Data

Targeted advertising optimizes all three of them. The same collection of first party data that ensures continued customer engagement and helps to reduce churn by offering an increasingly sophisticated amount of personalization in services, is also the same data that allows for the increasingly granular segmentation of an audience. Brought together, it results with a powerful offering that maximizes viewers’ engagement and operators’ revenue at the same time.

Targeted TV Advertising increases both the yield and the revenue for the same inventory: Instead of running two commercials in a one-minute break, operators could run, for example, 10 commercials, with each one targeting a different, highly relevant audience, segmented via their own usage data. 

To conclude, it seems that not only is Targeted TV Advertising the light at the end of the current Covid-19 tunnel, but it is also about to change the future of the Pay-TV business model. A change which, quite rarely, everyone will enjoy. 

Dror Mangel

Dror Mangel is a Senior Product Manager, AI & Data Solutions Domain. Prior to joining Viaccess-Orca he gained business development and product management experience from leading startups in Israel’s ‘Start-up Nation’, working with many global Fortune 500 customers. He is an expert in data-driven solution and is driven by data and a passion for creating B2C + B2B products from their early ideation stages to commercial launch, always focusing on the market's needs. He holds a Bs.C. in Industrial Engineering and Management from Technion - Israel Institute of Technology, and is currently working towards an MBA from Tel Aviv University