Small change, big impact


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  • Good morning…

    What I’d like to talk to you about today is our view that we will see relatively small changes in how people watch TV

    but that these changes will nonetheless have a big impact on the size and nature of TV advertising
  • There’s a common tendency amongst technologists and futurologists when talking about the future of TV, I believe, to over-emphasise the scale of viewing behaviour change to make a point about how much change is coming to the wider industry.

    So we have often been told that ‘linear TV will soon be dead’ and viewers will imminently be selecting all their viewing on-demand from a vast array of online sources – all in order to serve as a wake up call for the industry


    Back in the late 80s, Nicholas Negroponte the founder of MIT Medialab was forecasting that by the year 2000 we would be self-scheduling through fully converged TV sets.


    And right up to today, we have Eric Schmidt predicting a truly radical change in how we view TV, arguing it will become a very active and much more intensive activity, as people search for and select all their viewing - in order to emphasise the extent of the revolution that Google TV will bring.

    Yet, in actual fact, the industry is sufficiently delicately poised that relatively little change has to occur in how consumers access and watch TV, for there to be big repercussions for ad-funded television.
  • And we think that linear, broadcast TV will be more resilient than many have anticipated to date.

    So by 2020, we estimate that around 75% of TV viewing will still be viewed in a conventional linear fashion.

    And this is for 2 fundamental reasons….
  • Choice is fundamentally hard to manage, and viewers struggle to choose (or even know) what they want to watch from the 400+ linear channels they have, let alone the catch-up & archive services they will increasingly have access to….

    In the supermarket, consumers use brands and habit to avoid having to make too many choices

    Similarly, with TV most viewers use their preferred channel brands and the schedule those brands put together for them, to ease the burden of choice
  • So, as of today, over half of all viewers allocate 95%+ of their viewing to fewer than 10 channels, despite having access to hundreds


    And viewers don’t tend to take advantage of the choices available to them – so the number of channel changes per hour of peak time viewing is just 0.6 (so just over one for every 2 hours of viewing). Viewers are by and large sticking with what their preferred channel has selected for them as a means of dealing with all this choice.


    And even amongst those who are switching around a lot, 2/3 do so within a small selection of channels

    This use of a repertoire of channels and their broadcast schedule as a coping mechanism for dealing with choice, will be just as relevant if not more so as viewing choices and complexity increases with the roll out of VOD in the years to come.
    So Linear TV will continue to be the default option for viewers because its easy and doesn’t require as much effort as making a choice from seemingly infinite options…

    But I think linear TV is also likely to hold up because everyone loves ‘new’ stuff…..

  • …and there’s nothing newer than something broadcast for the first time

    This manifests itself in two ways:

    In a practical way, viewers want to be up to date with what everyone’s talking about and to take part in and engage in TV which is agenda-setting. And event TV in the form of X Factor and the like has arguably never been bigger

    Secondly, in a slightly less conscious way, I think viewers place an inherently greater value in a programme which is being broadcast for the first time, which is truly ‘new’, than in the same programme which is a year or even a week old (even if the content is not time sensitive, eg drama)

    Marketing has taught us all that new= improved, new=better and so subconsciously for many viewers ‘what’s on tonight’ has a freshness and an attraction that older programming doesn’t.
  • And so we see in PVR homes that levels of timeshifting remain low even after 5 or more years of use. Much lower than most commentators thought they would be when they were first launched almost 10 years ago.

    The attraction of linear TV, of the new, doesn’t appear to have been eroded much by familiarity with technology.

  • So we think there are strong reasons to believe that linear viewing will still be the dominant viewing type going forward to 2020

    Nonetheless, as PVR penetration grows to perhaps c75% by this time and TV VOD becomes commonplace, non-linear viewing will grow to around 25% of total TV viewing

    (by which, I should add, we mean long form video – we think there will be a large amount of short form, online video viewing on top of this, perhaps equating to another 20% or more again))

    I believe this non-linear viewing will be primarily driven by VOD viewing which inherently requires less effort than the PVR, though we expect the PVR to still be important for many households.
  • But, crucially, this level of non-linear viewing is unlikely to be distributed evenly across the population.

    I think the younger, and the more affluent demographs will be significantly more likely to watch in a non-linear fashion, with perhaps up to 45% of their viewing occurring in this way,

    Though still I would expect the majority of their viewing to be linear.
  • And the problem for broadcasters is that these groups are disproportionately important in generating ad revenue.

    So 16-34s, for example, account for only 19% of all viewing but almost 30% of ad revenue.


    Taking the likely viewing behaviour of 16-34s’, and other commercially sensitive groups, into account we estimate that up to 15% of TV ad revenue would be at risk from non-linear viewing in this scenario.
  • But that’s just one challenge amongst many for advertising as a source of TV industry revenue

    Simultaneously we think Pay will continue to grow in terms of penetration and household revenues,

    There will be ongoing structural pressures on TV advertising as digital alternatives (in particular search) continue to grow

    We will in all likelihood see a weak, macro-economic environment for the next 5 years or so

    And broadcasters will look to build other revenues such as merchandising and secondary rights

    All of which collectively will put pressure on both the absolute size and relative importance of TV advertising over the next 5-10 years

  • These will result in advertising becoming significantly smaller as a source of revenue for the TV industry, accounting for around 23% of revenues (having been as high as 34% as recently as 2004

    In order to minimise this decline over this period, TV advertising will be forced to become much more innovative and diverse….
  • If we think about the TV content value chain, moving from content production, through to packaging of the content, the delivery and finally the consumption….

    Advertisers and agencies have historically focused all their efforts on buying airtime from channels, at the ‘packaging’ stage

    Going forward, we expect them to become much more involved throughout, both:


    Upstream – in terms of buying up talent, acquiring rights & directly creating programming

    And CLICK
    Downstream – in delivering addressable advertising through the TV platforms and potentially at the point of consumption through the device, whether that be a web-enabled TV or a handheld device like the ipad
  • So i think that by 2020 TV advertising will begin to split into three quite distinct categories:

    Linear spot – This will still account for the lion’s share of revenue but will be considerably smaller than today

    Content – Incorporating ad-funded programming and product placement, this will grow considerably from today but will remain relatively modest

    And finally

    Addressable advertising, tailored at the individual or household level – Given that this barely exists today, this represents the biggest change
  • So looking at each area in turn in a bit more detail….
  • We think linear spot advertising will still the dominant form of TV advertising, given the ongoing high levels of linear viewing…

    It will be increasingly used by advertisers who:

    Prefer mass reach over precision targeting – so many FMCG or food & drink advertisers

    And advertisers whose brands are insufficiently strong or interesting to be able to create content that viewers will want to engage in

    AND at the same time

    Advertisers who specifically target the younger audiences that we expect to watch more on-demand , and who value high levels of targeting, will probably begin to invest less in this area
  • As spot revenues come under pressure, we think most of the innovation that occurs will be in the realms of trading practices.

    Assuming increasing relaxation of regulation, we would expect to see much greater flexibility introduced in the marketplace.

    This could entail a number of things such as the ability for broadcasters:

    - to constrain the supply of airtime

    to fix pricing around the most desirable peak programming

    - to establish auction based pricing for the less valuable airtime

    All of which will represent a fairly radical departure from the established trading practises and will help maintain yield and total spot revenue

  • Looking at ad funded content
  • We expect this to be most heavily used by the stronger, more established brands in the more involving product categories. So the likes of Nike, a client of ours, who are already becoming involved in this area….

    While it will grow, particularly for brands targeting younger audiences who will watch more non-linear, there will be significant constraints:

    It is logistically hard to deliver and takes time to achieve, which will place a practical limit on overall volumes

    It is not suitable for many genres & advertisers (so news & current affairs for neutrality reasons, high end drama series for costs), (only certain brands have sufficient stature to be credible creators of content)

    It is riskier than spot advertising for the advertiser and much harder to demonstrate its effectiveness in ROI terms

    So while it will grow, all of these factors will constrain the total size of ad funded content
  • Addressable advertising is perhaps the biggest opportunity and the biggest departure from today’s advertising landscape

    It is likely to be driven by the platforms rather than the broadcasters, as they will control access to the home and the information on the household. They will use their own and third party data to serve tailored, household specific advertising in both linear and on-demand programming.

    So in this example, a different price comparison site pre-roll ad would be served depending on whether the household’s car or home insurance is up for renewal.

    This whole area represents a huge opportunity for the industry to increase advertising yield significantly, and to bring in new revenues to TV, primarily from the Direct Mail industry which equates to £2bn in the UK pa.
  • While there will no doubt be some usage of addressable advertisers by FMCG advertisers (dog food advertising to dog owners being the classic example),

    we expect most of the growth to be driven by advertisers whose transactions carry a higher value,

    for whom its worth paying a higher CPM to reach the right household, namely finance and to a lesser extent motors.

    It may also open up TV to very localised advertisers, as search did to such great success.
    , looking to target a postcode or even handful of streets
  • But there are some significant challenges to addressable advertising that lie along the way:

    In terms of creative:

    How do you create highly tailored TV content, across multiple segments quickly & cost efficiently, while not sacrificing quality?

    How explicit should your understanding of prior behaviour be?

    Can a low cost production model be developed to allow local advertisers cheap and easy access?


    How does the tension between platform and broadcaster sales get resolved?

    How do we ensure we reach individuals and not households?

    Perhaps the toughest challenge though will come in the data analysis - being able to make sense of the available data quickly, to select targets and messaging dynamically and crucially establish what price is worth paying per segment
  • Mark Thompson the DG at the BBC and formerly Chief Exec at C4 said in an interview this year that the last innovation that occurred in TV advertising was in the early 80s when C4 started selling segmented audiences.

    And that’s probably a fair accusation of what is quite a conservative industry.

    Over the next 10 years, however, there will be much more innovation in TV advertising than ever before, some forced and some embraced. It will be predominantly in, but not limited, to the three areas I’ve talked about today.

    And it will brought about by relatively small changes in viewing behaviour that are disproportionately focused on the most commercially valuable audiences, forcing broadcasters, advertisers and agencies to be much more innovative.

    But while this change goes on behind the scenes, for most viewers, most of the time, I believe TV viewing will remain much the same….
  • … or a case of plus ca change, plus ca reste en meme

    Thank you…
  • Small change, big impact

    1. 1. Small Change, Big Impact Jeremy Pounder, Mindshare 5th November 2010, European TV Symposium
    2. 2. The ‘end of linear TV’ is a tale long foretold ‘By the year 2000, you’re going to have a very hard time telling me whether your TV set is a computer or a TV’ Nicholas Negroponte, Founder of MIT MediaLab 1989 ‘Once you have Google television, you’re going to be very busy, it’s going to ruin your evening’ Eric Schmidt Google CEO, 2010
    3. 3. Linear TV will be more resilient than many anticipate 75% of TV viewing in the UK will still be linear in 2020 Around
    4. 4. 1. Choice is very hard to manage
    5. 5. TV viewers manage choice through channel brands & the schedule Source: BARB; *top 10% by frequency 53% of viewers spend 95%+ of their viewing on<10 channels 32% of viewers change channels <5 times in an evening 66% of heavy channel changers* spend 95%+ of their viewing on<10 channels
    6. 6. 2) The enduring allure of New!
    7. 7. Viewers stick to linear TV even after many years of PVR use Sky + timeshifted viewing by years of ownership (%) Source: SkyView 1717161615 0 10 20 30 40 50 60 70 80 90 100 5+4321 % timeshifted viewing No Years of Ownership
    8. 8. Linear will still dominate, though VOD will drive non-linear growth Linear PVR timeshift VOD 2020 (f) 75% 10% 15% 2010 92% 6% 2% Estimated share of TV viewing by type (%) 2010-2020 (f) Source: BARB / Comscore / Mindshare estimates (includes longform online video eg iplayer)
    9. 9. Estimated share of viewing by age (%) 2020(f) Source: BARB / Mindshare estimates Timeshifted Linear 55+ 15% 85% 45-54 25% 75% 35-44 35% 65% 25-34 40% 60% 16-24 45% 55% Adults 25% 75% But, non-linear viewing will most likely skew young and upmarket
    10. 10. Putting a disproportionate amount of ad revenue at risk 28% 16-3419% 16-34 Total Viewing (%) Ad Rev (%) Up to 15% of TV ad revenue at risk Source: BARB / Group M estimates
    11. 11. On-demand viewing is one challenge amongst many for TV advertising Migration of key audiences to on-demand + Ongoing growth of pay Structural change (search) Weak economic environment ‘Other’ revenue streams (eg merchandising) Increasing pressure over next 5-10 years…
    12. 12. Advertising’s share of TV revenue will be significantly smaller 100% Subscriptions Advertising Public Funds (BBC) Other 2020 (f) 17 50% 23% 17% 10% 2009 11 41% 28% 24% 6% Source: Ofcom / Mindshare estimates TV industry revenue £bn, nominal terms 2009 -2020 (f)
    13. 13. Advertisers Talent Rights Holder Content Production Channel Device IP Delivery Network (eg BT) Consumer TV Delivery Network (eg Sky) Content Aggregator (eg Sony, Apple) As a result, advertisers will become increasingly involved across the value chain Content Production Packaging Delivery Consumption
    14. 14. Advertising will split into three broad types 100% Subscriptions Advertising Public Funds (BBC) Other 2020 (f) 17 50% 23% 17% 10% 2009 11 41% 28% 24% 6% Source: Ofcom / Mindshare estimates TV industry revenue £bn, nominal terms 2009 -2020 (f) Addressable Content Spot 35% 15% 50%
    15. 15. Linear spot advertising Content Addressable advertising
    16. 16. Linear spot advertising Content Addressable advertising
    17. 17. Linear spot advertising will increasingly become the preserve of mass market categories 3% 2010 12% 4% 10% 18% 9% 11% 26% 6% 28% 12% 2% 6% 10% Retail 13% 2020 (est) Misc Finance Ent & Media Food & Drink Toiletries Household Stores Motors 31% +15% Potential Linear Spot Advertising Share by Category 2010 – 2020 (est) Source: NMR / Mindshare estimates
    18. 18. Trading innovation & relaxation of regulation will help maintain spot revenues Minutage flexibility Fixed peak pricing Auction based pricing Help maintain yield & Total Revenue
    19. 19. Linear spot advertising Content Addressable advertising
    20. 20. Content funding will grow but within limits Challenges Transaction costs Suitability (genre / advertiser) Risk for advertiser Demonstration of ROI
    21. 21. Linear spot advertising Content Addressable advertising
    22. 22. TV Platform Ad Server (eg Sky AdSmart) Platform owned data 3rd Party integrated data Eg Experian Eg Demographics Viewing habits Stated preferences C4 (VOD / Linear) Car insurance up for renewal Home insurance up for renewal C4 (VOD / Linear) Pre roll / linear break Pre roll / linear break Price comparison site Home execution Price comparison site Car execution Addressable advertising is perhaps the biggest opportunity
    23. 23. Heavily focused on categories with high value customers Misc 10% 4% 9% 18% 34% 13% Ent & Media Retail Household Stores Toiletries Food & Drink 2020 (est) 31% 27% 5% Finance Motors 5% 2% 7% 7% 2010 12% 10% 6% +31% Potential Advertising Share by Category 2010 – 2020 (est) Linear Spot Advertising Addressable Advertising Source: NMR / Mindshare estimates
    24. 24. But some fundamental challenges lie along the way Creative Data AnalysisTrading
    25. 25. Linear spot advertising Content Addressable advertising
    26. 26. Plus ça change…