How Television Advertising Will Change

broken television

In its heyday, “This is Your Life” was seen by a broad swath of viewers tuned into their Philcos all at once, never dreaming that someday it could be rebroadcast, paused live, accessed on another gadget, or that its entire run could be contained on a thin metal disc.

Almost 50 years later, we’re almost similarly in the dark. Those Samsung flatscreens in our living room might still be the go-to device, but they are fast being joined by computer monitors, laptops, gaming consoles, iPods and mobile phones distributing content once solely accessed by TV, or in some cases, content that competes with TV. It’s conceivable—and probably inevitable—that TV/web convergence will lead to us ordering up movies, pizza and even advertising while watching custom-tailored content and interacting with social-network buddies at the same time.

The question is how these services will work together and who will manage and monetise them in a world where the TV networks operate with a mass-media mentality and are anxious to keep $60.5 billion in ad revenue from going the way of Philco.

A host of companies are already salivating for some of the billions pumped by marketers into advertising on broadcast and cable outlets, syndicated TV programs and local-TV stations. But there simply can’t be enough money around to profitably support video on YouTube, Hulu, Xbox, Apple’s iPhone and other platforms as well as on Fox, CBS, NBC, ABC and the rest. TV dominance “is certainly up for grabs,” said Bobby Tulsiani, a senior analyst at Forrester Research, “and there are a lot of hands in the cookie jar.”

Fact: Traditional TV viewership is waning, while other kinds of video entertainment consumption rise. The top 20 shows on broadcast TV during the 1979-1980 TV season—including “Three’s Company,” “That’s Incredible” and “M*A*S*H’—individually had a household rating of at least 21.7. These days, the titans of broadcast TV—CBS’s “NCIS” and NBC’s “Sunday Night Football”—notched an average household rating of 13.0 and 11.4 between the start of the 2009-2010 TV season and Nov 1. Total viewership for the top four broadcast networks in the current season through mid-November has slumped 42% since the same period in 1994, according to statistics provided by Brad Adgate, senior VP-research at Horizon Media. Including the CW, total viewership for the period is off about 38.5%, he said.

In the meantime, other technologies that provide access to video keep growing. More than one in four U.S. households contained digital video recorders (31 million TV households, or 27% of the total) at the end of the first quarter of 2009, according to Interpublic Group of Cos.’ Mediabrands; the figure is expected to rise to almost half (51.1 million, or 42%), by 2014. Video on demand was used in 43.1 million TV households, or 42% of 2009 TV households, and is likely to reach 66.6 million, or 64%—nearly two-thirds of households—by 2014. And these are just the TV-viewing experiences that involve the traditional living-room apparatus.

When the big screen in our living room finally converges into one that can deliver both TV and internet content, the game will certainly change. It doesn’t take too much imagining to foresee that in five to 10 years, many consumers will be able to access their online life with a TV remote, and the big screen will behave more like a touchscreen: It will know what shows we like, what music to offer us, and which social network sites and e-mail to feed us.

A realisation has already begun to emerge that the TV screen is really just a monitor, said Phil Leigh of Inside Digital Media, a Tampa, Fla. market research consultant. “Whether it be a monitor for video games, DVD players or even a laptop computer. …The TV is functioning essentially as a giant window into the internet cloud,” he said.

And when content can be filtered through one big screen, those who know how to command an audience can choose to feed those consumers directly. Witness Oprah Winfrey’s decision earlier this month to end her top syndicated talk show on broadcast TV, and instead develop her own 24-hour cable network. Sports leagues and, for that matter, movie studios, could arrange to have their own channels and sell directly to the audiences they amass directly, or sell those audiences to marketers. The National Football League currently has several deals in place with broadcast and cable partners, but it also has already put its own cable network in place.

And there’s little impediment for marketers to set up their own video streams constantly at the ready to pitch consumers with their latest goods, or set up interactive options that allow you to order a movie, pizza, or anything that Amazon sells with the push of a button. Social-media sites will allow consumers to chat with friends about the shows they are watching, or direct one another to videos, movies or content to view.

Forrester’s Mr. Tulsiani sees a day when TV viewers will be able to watch a show on TV for a while, then “pick it up at the same point on their PC or mobile phone.” TV users will be able to use their phone to program their DVR and do so much more, analysts predict. “The variety of content itself will just be exponentially greater, from the networks to cable to digital cable and even more … more content choices and the quality content will be coming from not only studios but many independent creators,” Mr. Tulsiani said.

What’s To Come

This holiday season’s hot new gadgets and entertainment services offer a clue to what’s coming next, and who’s looking to get a piece of that ad money (see above). Netflix selections are available for streaming on everything from Microsoft’s Xbox 360 to TiVos, as well as TVs made by LG Electronics and Sony and the Roku video-streaming device. Best Buy recently took a stake in a company that produces CinemaNow, a video-downloading technology that the electronics retailer plans to make available in the goods it sells that can connect to the web. Of course, there’s also Apple’s TV, which could over time allow viewers to order up programming on demand.

Already, rivals are dipping their beaks into the water. At Microsoft, executives hope to see the popular Xbox evolve into “a very all-purpose media consumption device in the living room for 100 million, 200 million people,” said Mark Kroese, general manager-entertainment and devices for Microsoft’s advertising business group. The gaming device also functions as a venue for watching content on-demand from Netflix, but one idea is to boost its potential to reach live audiences as well, he said. Rather than suffering through ads that interrupt the entertainment, users can opt to explore marketers’ entreaties that are part of Xbox’s “home” platform, and in exchange see entertaining videos or movie trailers. “Xbox can definitely support a live TV environment,” Mr. Kroese said. “Whether the business model evolves for us to do so remains to be seen.” Others are working to weave advertising into emerging viewer behaviour. TV users will do more fast-forwarding, pausing and searching for content with their remotes, and advertising can surface during those interactions, said Tara Maitra, VP-general manager, content services and ad sales, TiVo.

Imagine seeing a full-motion ad pop up when you pause a show, that “may be contextual to the content: “‘Your pause was brought to you by Audi,'” suggested Steve Tranter, VP-interactive and broadband, at TV-technology concern NDS. Another idea: sponsorship of fast-forwards and rewinds.

And there’s lots of talk about addressable advertising, a technology that could prove destabilizing or lucrative, depending on who’s doing the talking. Soon, ads for hot dogs could be dispatched to one home and ads for Pampers to another, depending on available consumer data. Networks might charge a premium for such ad inventory because it’s targeted more finely. And because multiple advertisers could appear in the same 30-second space, networks would also be able to do business with a broader range of clients.

Some of the money, however, could be up for grabs, with cable systems or even media buyers inserting themselves into the process. Media agencies have considered buying up inventory and reselling it to their marketer clients. Experimentation has been underway for the last few years. In Huntsville, Ala., Comcast worked with Publicis’s Starcom MediaVest Group, sending ads from marketers such as General Motors, Discover Card, Hallmark, Kraft Foods, Mars, Miller Brewing Company and Procter & Gamble to viewers who matched up with pre-defined demographic segments. The companies found that homes receiving addressable advertising tuned away from the commercials 38% less than homes that received non-addressable advertising. Even so, the industry has been slow to put technology in place, and web-connected TVs could render this idea obsolete.

New Way of Selling

TV networks, meanwhile, will work to retain control over the advertising that has for years bolstered their fortunes. But many TV executives acknowledge a day is coming when some of that revenue will be shared.

CBS Corp. already envisions selling ads in a somewhat new fashion: An ad might run in “CSI,” the TV episode, but also in all streams of the show online for one week, suggested David Poltrack, CBS’s chief research officer. In the future, “we’ll sell you ‘CSI’ across platforms. You will get your advertising in the episode that goes on TV that week, and you’ll get your ad running in all streams of any episode of ‘CSI’ online for that one week,” he said. “Now you’re building up more of a significant amount of internet coverage and then the same thing could apply to mobile.”

At the same time, a realisation has begun to set in that in an on-demand world, others will insert advertising into the process. Widgets and interactive-TV services will be able to advertise around programs in some ways, said Mr. Poltrack, but CBS will try to make the best of the situation by leveraging its ownership of the content. “If they are adding value, they’ve got to get compensated for that, so it’s probably a revenue-sharing project as opposed to something we would not totally control,” he said. As for new-media players who “bring an enhancement and are looking for revenue-sharing models, certainly, we’re open to the conversation.”

New technology and the upheaval it will cause are fascinating to discuss. What’s not so much fun to talk about is severity. TV has always been an advertiser’s tool of preference to reach giant audiences, goose fast-food sales, launch movie openings and push foot traffic into retail outlets. Imagine the difficulty in doing just that when ads will have to be tailored not only for specific viewers—a cooking show is quite different from an adventure drama—but also for how each of those genres is being viewed on a big screen, a mobile device, or on a DVR. Ads, too, will have to evolve, designed more at eliciting an active response—or even indication of purchase—from an active viewer, rather than merely dazzling a couch potato. Yes, it’s true: In the future, TV will survive. But mass marketing may not.

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