The 2012 Super Bowl may have been a turning point for leading edge advertisers in embracing hybrid campaigns across multiple screens and media. However, the balance of the market still tilts toward traditional TV ads, partly because the analytical metrics used to evaluate advertising alternatives do not yet adequately address the realities of modern media consumption. The Nielsen Company and others are pursuing audience measurement solutions that more accurately assess the value of viewer impressions across devices and media. We believe that these solutions will serve to highlight the value of the on-line impressions, likely at the expense of traditional TV. Over time, this could mean a meaningful shift in advertising, weakening the value of channel brands and amplifying the opportunity for streaming video and social media.
The Super Bowl offered a glimpse of the future – streaming video, event driven social media, hybrid ad campaigns, multi-screen viewing, etc.. 111 million people watched the Super Bowl broadcast live on NBC, while a little over 2 million watched on-line. Twitter saw its record for tweets per minute broken twice during the game, and Facebook usage was up 600% vs. the previous year’s game. Many of the big ads were launched ahead of the game on-line, and many of the big advertisers report big hits on their web sites in response to their spots. Mobile device use surged, rising from 25% to 41% of searches during the game.
However, in general, ad spending remains dominated by traditional media. While on-line video advertising is growing nearly 50% YoY, it remains just 1.3% of U.S. ad spending. Taking all forms of on-line ads into account, the Internet accounts for just 16.7% of total US advertising, vs. TV (38.2%) and print (29.3%). Total US channelized TV advertising is split between broadcast nets ($15B), local stations ($19B), cable nets ($25B) and multichannel system operators ($5B). The total of ~$65B is nearly two-thirds the size of annual fees paid by multichannel TV service subscribers, and 40% of total multichannel industry revenues. For broadcast nets and their affiliates, advertising revenues outweigh multichannel retransmission fees by more than 20 to 1.
A big reason for this is that the analytical metrics used by advertisers are built on outmoded assumptions about media consumption. TV ratings in particular have had to cope with a raft of innovation – multiple TV households, DVRs, streaming video and multi-screen viewing. Nielsen has set-top box data, but relies on user surveys to confirm the viewers in the room. The basic ratings do not assess whether so-called viewers are multi-tasking with mobile devices and assumes that all are attentive. We believe that this overrates television audiences and thus, inflates the pricing of TV advertising.
New analytical solutions to assess advertising effectiveness across media are emerging, revealing 18-34yo demographic shift to on-line. Nielsen has tracked on-line usage for just one year, but has been cautious in applying its findings to negotiations over advertising sales. On-line video advertisements already command higher prices than ads for channelized TV, due to the superior targeting, interactivity and tracking, as well as barriers to avoidance. Nonetheless, the data seems to show the key 18-34 year old demographic shifting its media consumption from TV to the Internet at an accelerated pace, confirming anecdotal reports. If the trajectory continues, it would have profound implications for advertising spending.
Video advertising spending will shift from channelized video to on-line, in an accelerating, irreversible, self-reinforcing cycle. This dynamic feeds the cycle – growing advertising is attracting more and better content, improving content attracts a larger audience and the audience attracts additional advertising. Internet video advertising is nearing the critical mass where its growth will be material to the multichannel TV industry and beyond which economics along the value chain from content creation, through aggregation into networks, and into multichannel service offerings could be severely disrupted.
Display and search advertising tied to secondary screen usage during video events may also siphon value from TV as part of increasingly hybrid ad campaigns. The boom in traffic on social networks and the spike in Super Bowl specific searches highlights the phenomenon of media multitasking. With the first iPad introduced just 21 months ago, “multiscreen” viewing is a new thing, but one that appears to be changing the fundamental nature of media consumption. Leading edge advertisers have already begun devising hybrid campaigns that co-ordinate messages across media, a trend that could further disrupt the economics of traditional video advertising.
The leading Internet aggregators and aggressive content brands, agencies and advertisers will benefit. Those tied to traditional multichannel TV will lose. We believe that on-line advertising is a big part of the concentration of the future value of the Internet into the hands of Google, Amazon, Apple, Facebook and Microsoft. Content creators, entertainment network brands, advertising agencies and advertisers that establish leadership in the emerging medium will also benefit, but those that remain committed to the traditional multichannel model will likely lose ground. Long term, we remain convinced that multichannel television distribution will wane, a serious concern for investors in cable MSOs and satellite TV operators.
For the full research note, please visit our published research site.