This article originally appears on MediaPost.
YouTube, Facebook, Amazon and Netflix all have mountains of data on their users. They are also digital natives that operate on the backbone of the Internet.
For these companies, content delivery is automated, data-driven, smart, fast and on-demand. It is of course no surprise to see those that are ad-supported set their sights on TV ad dollars. For all of them, digital video and originals are at the top of the priority list and this is what will finally drive the industry to broad addressable TV solutions.
For years, addressable TV advertising has been an ideal that was often theory more than reality. Rather than place a television buy that reached tens of millions of households, but would only appeal to a small minority of those households, the addressable buy promises to largely remove the waste.
On its face, the appeal of such a targeting mechanism is clear: efficient marketing meant to drive higher ROI. In the digital world, if a campaign was targeted to people in the market for a new car, the TV buy could follow suit instead of relying on broader targeting aimed at everyone who was watching the same TV program at the same time. (Of course, addressable targets by the household meaning if a family of four resides there, no one will be sure if the target consumer will be watching at any given time).
What has made the prospect of addressable TV advertising frustrating for many marketers is that while it is technically achievable, the economics are sometimes difficult to balance. Meanwhile, tapping data from third-party sources requires extra work for marketers and it may not always be worth the effort.
But there may be a real shift in the market coming soon. The highly targeted audiences that are and will be available from the media giants mentioned earlier will (eventually) attract marketer budgets that are earmarked for traditional TV — cable, networks, local, etc. Traditional TV, the incumbents, will not passively stand by as the market shifts. The stakes are too high. So this is one of the primary market forces having an impact on change in the traditional TV industry. The other is a change in consumer behavior. Consumers want top quality programming, this is nothing new, but they want it on-demand and on all devices, which is an inherent characteristic of digitally delivered content today. Evolution is inevitable.
As a result, I expect to see a rise in addressable TV advertising, but it will remain a relatively small slice of the market for the next few years as the industry sorts itself out.
The current state of addressable
At this writing, tens of millions of homes in the U.S. are able to receive addressable TV advertising and some 70 million will be able to get it by 2020. But just a fraction of homes are actually being served ads this way. According to eMarketer, addressable TV accounted for just 1.3% of the total market in 2016, a figure that the researcher predicts will jump to 3% by 2018.
As those numbers indicate, addressable has been used more for experimentation than a regular line item on media plans. So far, carmakers have shown the most interest in addressable. For example, Toyota promoted its Prius Prime to 18-49 year-old tech savvy consumers with annual incomes of $75,000-plus last year. Hyundai placed a similar addressable buy to promote its Genesis model, targeting consumers with annual salaries of $100,000 or more.
Marketers, looking to gain more of a 360-degree view of their customers, are also clamoring for more data so they can connect all of their audience buys across all screens. Ultimately, driving outcomes that build a business is the goal and knowing what budget to spend and where to spend requires a holistic planning, execution, measurement, and optimization effort. That said, I don’t expect the addressable TV market to crack wide open too soon. There is much invested in the history of the industry; cable operators, for instance, are likely to keep experimentation on the edges until they see a clear benefit.
But the momentum is moving toward an addressable world. That means that even though addressable TV has been on the table for years and the pace of progress, for some, has been a source of frustration, marketers may soon start achieving what until now has merely been an idea.