Broadcasters and pay TV operators are increasingly looking to the web for models about how to make additional revenues from advertising. But TV is different in many ways and progress is likely to be patchy. Stuart Thomson reports.As any attendee at TV industry conferences must know by now, people increasingly are watching TV when, where and how they want. No longer penned in by the TV schedule and the set in the living room, technology is enabling them to time- and place-shift to their hearts’ content.While the pace of this shift has been exaggerated, the potential impact on what remains the principal mainstay of the TV business – advertising – is huge. While broadcasters have until now largely been able to keep the traditional advertising-funded show on the road, they know they need to change the way TV advertising works to secure their business for the future, before a tipping point is reached where linear viewing for most content falls out of favour. The matter is given an additional element of urgency because the people whose viewing habits are changing fastest – the 18-35 year-olds – are those that advertisers most want to reach.While traditional, schedule-bound viewing has in many ways proved to remarkably resilient, the popularity of OTT and multiscreen TV has grown alongside that of non-linear content consumption, with OTT providers primarily focused on delivering video-on-demand, and tablets and smartphones more typically being used to view on-demand than live content.Given the nature of the shift taking place, broadcasters might be expected to be changing their working practices significantly to ensure they don’t get left behind. However, mainstream broadcasters and pay TV content providers alike have struggled to identify ways to make money from non-linear, IP-based multiscreen delivery. On the contrary, the trend towards on-demand viewing has served to undermine the advertising business rather than enhance it.The advertising industry, including media buyers, have also proved to be conservative. While the way people view content is changing, the industry has by and large yet to make the necessary changes that will enable their clients to continue to reach the audiences they want to target and enable broadcasters to continue to make a viable living.Pay TV advertisingThe advertising business varies hugely from market to market, even in the linear world. In the US, cable operators have long played a major role in advertising, which delivers multi-billion dollar revenues through cable’s ability to sell a fixed portion of hourly advertising inventory on channels carried over cable. In Europe, this business barely exists, except in a fragmentary form.However, even European operators are beginning to get involved in the advertising business in a small way, if not by selling ads directly, then by teaming up with broadcasters to deliver multiscreen, targeted and non-linear advertising, as well as to exploit additional inventory that has appeared on the operator-branded guides that enable viewers to navigate the content on offer.“The main reason service providers need to get involved in advanced advertising strategies is not to compete with broadcasters, but rather to offer a solution that enables broadcasters to compete in a new ecosystem, whereby new video platforms are creating a fragmentation of audiences and capturing ad dollars that used to go to networks,” says Thomas Bremond, European managing director of ad technology provider FreeWheel.The slowness of pay TV operators and broadcasters to address the shift taking place in advertising is surprising. While the relationship between broadcasters and pay TV operators is characterised by a degree of tension over one of the mainstay revenue sources of the pay TV business – distribution fees – advertising is an area where both potentially stand to benefit if they can agree terms of trade.For Bremond, the opportunity is linear ad insertion, where operators can substitute ads in linear streams – which still account for the bulk of viewing – and deliver advertising that is more relevant for the audience in a particular region, for example. However, for various reasons, operators have initially focused on on-demand advertising, says Bremond.“There has been a lot of discussion around linear ad-insertion, when in fact it is a complex equation to solve both legally and technically. In the US most operators have decided to focus on helping broadcasters create additional VoD inventories for programmers on their catch-up/replay platform,” he says, describing VoD as the “intersection” between premium linear content and the digital world of addressable advertising.“While linear is probably the biggest opportunity down the line, starting with enabling programmers to dynamically serve ads on an operator’s VoD platform is a very important short term milestone, as it will enable the ecosystem to find the right balance and business models,” says Bremond.For Jean Moonen, vice-president, product management and business development at SeaChange International, service providers’ involvement in the advertising business is “always talked about” but has struggled to achieve momentum. “The big challenge in Europe is to create business agreements between content providers, broadcasters and service providers,” he says. “One of the key differences between the US and Europe is that in Europe there isn’t a legal framework and accepted measurement system for this.”While some initiatives are afoot in certain markets – Moonen cites the example of broadcasters granting network DVR rights to pay TV operators in exchange for being allowed to substitute ads – this is very much a patchwork affair, he says.Neerav Shah, vice-president of multiscreen video infrastructure, cloud business solutions at technology provider Arris, whose company has worked with a number of European broadcasters and service providers including RTL and Vodafone-owned Kabel Deutschland to enable enhanced advertising, agrees that the main obstacles to a service provider-supported advertising business taking off in Europe are commercial and legal rather than technical. Problems in the linear advertising sphere include how to verify that advertising is properly regionalised and that the correct ads are played out in the correct spots.Shah says things are “generally easier” in the digital world. In the case of OTT platforms with content rights that do not address set-tops, it is straightforward to insert advertising. The challenge, he says, is to ensure that the advertising sold maintains its currency and does not degrade the value of linear platforms.Programmatic buyingWith traditional TV advertising struggling in a number of markets, broadcasters and pay TV operators who make money from advertising are increasingly looking to the web as the template for creating a way of working that will enable them to protect their business and increase its value as well as a potent competitive threat. Introducing ‘programmatic’ buying – and selling – of advertising inventory – meaning the kind of automated buying and selling practiced on the web – is seen as a key part of what the TV world needs to do to keep up with the internet. In the case of programmatic buying, however, the industry is bedeviled by a lack of alignment of the technologies and working practices employed by buyers and sellers. Nevertheless, some industry observers see progress being made albeit slowly.“What is so fascinating now is I think we are finally seeing enough technological innovation not only on the selling side but on the buying side that is enabling this automation between buyers and sellers,” says Sarah Foss, VP/PLM, advertising management systems, Imagine Communications. However, she cautions that buyers are still very far behind in developing the kind of systems and practices that would enable programmatic buying to be done on a systematic basis. While “those with centralised ‘buy-side’ clearing houses have done programmatic buying for years”, this is far from universal, she says.Foss says that one issue is around transparency. Sellers can be reluctant to give too much away regarding pricing, while buyers may have more interest in transparency. If industry practice is characterised by closed-door deals that obscure pricing to other potential buyers, changing this is likely to prove challenging.Programmatic buying and selling is related to automating data capture and providing the relevant data that will enable the buy side to make informed decisions. However, again there are major hurdles to cross before a perfect alignment of buyers and sellers is achievable. “Very few markets share data in near real time for TV and radio because buying systems and selling systems can’t share the data,” says Foss.Foss says that “the convergence of the business models of TV and digital” is becoming real, with the world moving towards a web-like ‘impressions’-based valuation of campaigns rather than a TV-centric ratings-based assessment. Advertisers want more than information about how many impressions their ad receives, according to Foss. “They want rich data and audience-based information,” she says. “The pay providers so far have done a good job of setting up the opportunities to deliver targeted ads to particular audiences but getting that data back to the agencies and buyers…is not happening.”It is likely to be some time before programmatic buying and selling of TV and premium video advertising becomes the dominant form of buying and selling video ads, for a number of reasons. According to an eMarketer report last year, US programmatic digital video ad spending is likely to grow from a US$710 million (€645 million) business in 2014 to US$3.84 billion by 2016, rising from 12% to 40% of the total, but with most of those choosing the programmatic route opting for a ‘programmatic direct’ approach – that provides inventory pricing guarantees – rather than the ‘real-time bidding’ approach more common for display ads on the web. The TV growth, though impressive, pales beside expectations for digital display ad spend, which eMarketer projects to grow from US$10.06 billion in 2014 to US$20.41 billion by 2016, rising from 45% of the total in 2014 to 63% by next year.Foss predicts that the industry will continue to be characterised by a hybrid “dual currency” system, not only because inventory holders are keen to guard their property closely but because systems are not in place to enable universal programmatic trading.Australian cable operator MCN, which is using AOL TV’s programmatic ad system, has reported that it expects to generate 5% of its ad revenue via programmatic by the end of this year. The operator is selling inventory for a large number of TV channels, including premium sports and entertainment channels.While recent moves by MCN and – in the US – ESPN to move some of their inventory to programmatic platforms is ongoing, there are good reasons why the selling of TV ads is likely to remain set apart from the way display advertising is sold on the web.“TV advertising is traditionally bought months in advance, ensuring early revenue for broadcasters and pay TV operators, while programmatic selling relies on automated selling, usually in semi real-time. This means that broadcasters and pay TV operators may not be able to sell their entire inventory programmatically, which would result in revenue loss,” says Andy Nobbs, chief commercial officer at Teletrax, which specialises primarily in enabling multiscreen advertising. “While programmatic has demonstrated its capacity to sell more inventory and fasten the pace of transactions online, broadcasters and pay TV operators can ensure that all their inventory is sold at the best price by combining traditional TV buying and programmatic, depending on the potential to raise the auction for each slot.”Arris’s Shah agrees that programmatic buying and selling will be applied only selectively in the case of TV advertising. “Everyone talks about programmatic but the majority of the inventory is still bought in upfronts in the US market,” he says, referring to the annual buying events where programmers put their wares on display for advertisers who then buy inventory for the year ahead. Where programmatic buying is making inroads in the TV world, he says, it is being applied in the form of private rather than public buying, where buyers have to meet a reserve threshold that ensures the value of the spots remains high.FreeWheel’s Bremond argues that “programmatic selling needs to be put back in the right context”. For premium video inventory owners, the key benefit is automation – i.e. a reduction of costs and streamlined processes – alongside ensuring compliance with rules that apply to TV content and enabling operators and broadcasters to increase the value of their inventory by enabling more targeted buying. “The main challenges are to ensure that any programmer or operator that wishes to enable programmatic access to its supply follows the rules. In a nutshell, access to safe demand is the number one concern of anyone with premium inventory,” he says.On-demand insertionIt may therefore make sense for industry players to focus first on implementing technologies such as programmatic buying and selling in an area that is currently underexploited, where there is room to experiment without any danger of bringing down the existing advertising business.“It is extremely important for operators and programmers to start with environments that can be assimilated into the TV viewing experience without threatening the whole ecosystem,” says Bremond. “Catch-up, VoD or replay environments provide a fertile ground as they are rapidly increasing in viewership; programmers are increasingly bundling linear with VoD sales and measurement is starting to come up with metrics that enable better measurement of non-linear activity. From a systems perspective, the key aspect is to ensure that any rules and user experience are maintained across the board and across all inventory.”For Matt Smith, chief evangelist at advertising and streaming technology specialist Anvato, however, OTT and non-linear distribution is underexploited because it still in many ways at a very early stage. He argues that broadcasters and service providers are currently focusing on the deployment of OTT services with an eye on making money from advertising at a later date. However, one key area that Anvato is involved in is enabling broadcasters to turn live streams into VoD assets in near real-time. Ad breaks are marked in the broadcast stream and can be re-employed to deliver in-VoD advertising, still within the C3 ratings window as defined by ratings agency Nielsen in the US.If viewing is shifting to on-demand platforms on the one hand, it is, in parallel, also being fragmented through viewing on multiple screens including tablets and smartphones, taking eyeballs away from the TV where most advertising money continues to be made. This shift causes complications for the advertising business as audience measurement in the multiscreen world is more difficult than installing a people-meter in a representative panel of TV households.“Viewer attention is continuously shifting between the TV screen, and secondary devices such as mobile, tablet, or even apps and social media,” says Teletrax’s Nobbs. “This rise in device proliferation makes it increasingly difficult to predict the viewability of a TV advert as viewers switch between TV and online. This leads to concerns for service providers who aim to make additional revenue from enhanced advertising. In a world with multiple content sources and devices, service providers need to reconnect with viewers by creating immersive experiences that span the primary screen and social media via the second screen.”According to Nobbs, service providers need to combine social data via platforms including Twitter and Facebook with TV’s scale to reach their targets on whichever screen they’re currently using and create additional revenue.Teletrax is focused on providing technology that enables the synchronising of ads on multiscreen devices such as tablets with what is happening on the big TV screen. Nobbs describes the targeting enabled by multiscreen advertising as “the first step towards true programmatic selling for TV”.Arris’s Shah maintains that exploitation of catch-up or network DVR makes sense because younger viewers are moving to non-linear and because this inventory is currently very underused. “Right now there is no money coming from this – there is no revenue from that [catch-up] window,” he says. Potentially, however, operators can sell this inventory at a higher CPM than even linear spots because it provides the ability to target adverts down to the individual level, says Shah. A UK operator is currently working with Arris to provide targeted advertising in this area.Targeted potentialAs viewing fragments, targeting has for a long time been held up as the potential saviour of the TV advertising industry.Imagine’s Foss says that automating targeted campaigns can deliver a significant premium in pricing that justifies the investment. “Advertisers agreed that when they saw how effective targeting was [at generating] actionable behaviour, it made sense to decrease the number of ads [placed] and increase consumer satisfaction and mind share and avoid viewers tuning out. That is all possible because of deep data that the pay TV operator could share with the agency,” she says.However, one of the key challenges is communicating the benefits of targeting to ad buyers and explaining what is technically feasible.“I think that there still is a certain disconnect between the advertising world, and the technology world and the broadcast and cable sector,” says Smith. “Broadcasters and service providers understand that with OTT services you can target down to the device. Each [device] maintains a unique connection with the cloud and you can target, for example, to a postal code. The ad world doesn’t yet understand how specifically you can target. The fact is that we can deliver an ad in real time for live content or for a VoD file and divide London say into districts or deliver to groups of users based on certain data.”For SeaChange’s Moonen, targeting “increases the total pie” for everyone involved – broadcasters and operators alike. “I don’t think you even need a measurable action from the viewer,” he says. “If you can prove you are targeting according to demographic group or income group that gives value and increases the CPM you can ask for the inventory.”Targeting is now beginning to be taken seriously in TV, with what happens on the web again providing the template. However, the full potential of targeting is unlikely to be achieved without greater adoption of automation by the industry. Currently the whole TV advertising ecosystem is extremely fragmented. There is a lack of agreed standards to represent inventory. Arris’s Shah points out that advertisers are still buying linear and non-linear ad spots separately.The industry is justifiably concerned about destroying the value of linear advertising, so it seems likely that on-demand and OTT must lead the way in pioneering new models of how ads can more efficiently be bought, sold and delivered to viewers.