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How connected devices will disrupt the TV ad market

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Linear TV makes up the bulk of video ad dollars today, with about $160 billion worldwide being spent on broadcast advertising, compared to just $5.4 billion in IP-delivered video. But a rapidly growing number of connected devices will soon disrupt what we think of as TV advertising, by combining TV-sized reach with all the interactivity, targeting and analytics advertisers have come to expect from web video ads.

The online video ad market has grown substantially over the last few years, but so far it has yet to really make a dent in TV advertising. While the TV ad market is growing more slowly than online on a percentage basis, it continues to add billions of dollars every year, compared to just the hundreds of millions that are sneaking into online video. For those that thought online video would soon begin to steal budget away from TV, that hasn’t happened — yet.

But things start to get interesting when TVs get connected and more of the video we watch is streamed rather than delivered over traditional TV broadcast. As seen in the graph below, the real opportunity for advertising growth is in targeting that increasingly influential medium. The graph, which is based on data from Booz & Co. projections for the video ad market, was first shown to me by Videoplaza CEO Sorosh Tavakoli as evidence of where the “TV ad market” is actually going.

Advertising for video on PCs and web browsers, video delivered to mobile devices and video delivered to tablets will all grow significantly in the coming years, but will pale in comparison to the growth of advertising for streaming video on connected TVs. And as monetization of streaming video to connected devices grows, the share of ad dollars going to traditional TV services will shrink.

That’s where companies like Videoplaza come in: By serving as the go-between for media buyers and consumer electronics manufacturers and streaming services, they can meet the unique demands of ads built for TV, but with all the bonuses of IP delivery. They will be able to combine the reach of broadcast TV with the interactivity, targeting and accountability of web-based advertising, agencies and brands will get the best of both worlds. They will be able to serve into multiple video platforms and formats across consumer electronics manufacturers. And they’ll enable performance-based campaigns that also scale beyond what is a fairly limited web video market today.

For its part, Videoplaza already enables advertising on devices like the Sony PlayStation 3, (s SNE) Samsung and LG TVs, the iPhone, iPad (s AAPL) and Android (s GOOG) mobile devices and IPTV platforms in France. While focused primarily in Europe, the company is rapidly growing worldwide.

But it’s not alone: All the major ad networks are looking for ways to expand beyond delivering ads into the web browser and onto a growing number of devices. With so much future money at stake, it’s no wonder that connected TVs will be at the center of many ad technology company strategies going forward.

9 Responses to “How connected devices will disrupt the TV ad market”

    • A whole lot of BS. This story is pure speculation by people who appear to have very little insight into the TV business. Connected TV represents a drop in the ocean right now and it’s not clear how long it will take to become meaningful.

      By that time linear TV will either adopt targeting via Visible World/Invidi or go all IP and then targeting will become much easier. The fact is that unless connected TV players start ponying up major cash to get current programming, it will never amount to enough viewing to live up to the graphic in this story. And if they do, their price will go up and impede their growth (see Netflix)

  1. Paul Moss

    “…all the interactivity, targeting and analytics people have come to expect from web video ads..”

    Sorry, but this is one of those times that logic is seriously over-rated. Targeting in the living-room is, i believe, grossly misunderstood. IP techniques generally do well online when certain criteria apply. Criteria such as strong known intent, a single-user, and instant gratification requirement. However in the living-room, with TV, whats the intent of a user(s) watching America’s Got Talent? How to gracefully and successfully target a dynamic 2-5 person environment? How to handle varied gratification requirements in that multi-viewer environment? Not impossible, but not as simple as assumed.

    Then there is the supposed wastage of current TV advertising – the 50% myth that says only half the advertising is hitting its target market. This doesn’t take into account that much of that ‘wasted’ effort is actually hitting secondary markets and influencers. I think we will find that old-school TV advertising actually has much hidden ‘organic’ value that digital methods may find hard to replicate.

    There is also the advertising formats, standards and protocols question. Different video players with different capabilities, especially regarding in-video graphics make consistent, transparent delivery operations very tricky. VAST2.0/VPAID are still immature and require optimization per ad-serve partner.

    The ad spot value difference. $8,000 for an average 30s spot on broadcast vs $40 per thousand on digital – on the same living room device! Perfect environment for disruption, yes. Perfect environment for war, also yes.

    In summary, this is going to be an incredibly exciting and dynamic space in the next few years, so the story subject matter is spot on. But lets not dumb-down a rich and fascinating environment into that lame analog dinosaur vs digital disrupter theme.

  2. Real garbage of a quantitative graphic.

    It is designed to look contentful, yet w/o any meaning to the X-axis it really has no meaning. are those projections over the next week, or the next thousand years.

    you intended this when you created it. You just hoped your readers would not catch it. Sad. Shame on us and on you.

    • Hi Dan,
      the graph is rather visionary as you point out, rather than being scientific. As you can see it has no timeline nor any other clear elements except of a snap shot of where we are today.

      The point is not the actual pace nor the exact share of each device – it’s rather the bigger picture of where the market is going.

      Hope this helps.

  3. Nice post, Ryan. Streaming and linear broadcast are currently different silos of distribution and I think your analysis implies that will always be the case. I think the bigger opportunity for Smart TV lies in building dynamic elements on top of, or contextualized by, the non-dynamic platform for broadcast.