TV Networks Will Capture Majority of Digital Video Dollars

While advertisers and investors anxiously await the explosion of digital video inventory from YouTube, Vevo and others, broadcast and cable networks and studios are poised to capture more than half of marketers' spending on digital video advertising. Nearly half of all Americans view video content online and 10% view video content on their mobile devices, according to the new cross-platform report from Nielsen. Myers data forecasts steady growth of viewing across non-traditional platforms with 75% of Americans of all ages viewing video online and 40% viewing video on mobile devices by 2015. A significant share of this viewing will be to network broadcast and cable TV programming, as networks license an expanded array of fresh and archived programming to their own websites, Netflix, Hulu and soon-to-emerge platforms from Pandora, Apple, YouTube, Amazon, Barnes & Noble and other digital distribution channels. TV Everywhere is empowering viewers to watch network programming on-demand across multiple platforms and promises to deliver live news and sports as well. Video networks and syndicators such as Grab Video Networks, Vimeo, Tremor, YuMe and Snag Films are gaining traction as publishers like Martha Stewart, Associated Press, Thomson Reuters, Condé Nast, Hearst, Meredith, Gannett and many others ramp up both the quantity and quality of their video production. Marketers' video advertising options are expanding exponentially with digital video advertising revenues increasing commensurately.

This data does not include networks' share of social, word-of-mouth, conversational and commerce marketing that Myers projects will increase from less than $2 billion in 2011 to as much as $15 billion in 2015. With several networks, led by NBCU cable properties, aggressively increasing their social TV initiatives, traditional TV media owners should be well positioned to capture a sizable chunk of those budgets as well. Myers has projected that social TV could generate $8 to $12 billion in incremental revenues by 2020. (Visit www.socialtvsummit.com)

Several leading agencies are discussing and debating the impact of the emerging video marketplace on their organizational models and strategies. Should digital video media buying remain the domain of digital agencies or should it be integrated with network TV buying groups? There are arguments for both positions. Will Upfront buying and planning by necessity incorporate digital inventory and will more and more advertisers target their messages in specific programming across multiple platforms – in a quasi-return to the days of program sponsorship? How will audiences' behavioral patterns and characteristics be used for video media planning? How will agencies and media companies integrate video advertising as they navigate the technology-driven world of demand side platforms, exchanges and networks, all of which are becoming fundamental to the buying/selling process? How quickly will Nielsen respond to the need to deliver greater insights and analytics as video content moves across multiple platforms? While Nielsen has been actively expanding its cross-platform practice, emerging competitors like TRA and Rentrak are gaining traction while marketers are increasing their dependence on marketing mix analytics tools from Marketshare, MMA and others. With DVR penetration soon to surpass 40% of households and a growing percentage of viewing done on-demand, will the industry accept an evolution from C3 ratings (live plus three days) to C7? I project that the industry will embrace C7 as a new standard by the 2015-2016 Upfront.

For networks and studios, Nielsen ratings will become progressively less important as they measure a program's value based on its long-term revenue potential across a growing array of viewing windows and an expanding number of paying distributors. Advertisers will always want to reach the largest potential audience within a limited campaign period, and will pay premiums to those media that can best deliver large concentrations of targeted demographics. As video inventory increases exponentially and audiences fragment, traditional TV network content will remain the most appealing option for these advertisers. But the business models surrounding the relationships among networks, advertisers and distributors across all platforms will require new rules, new tactics, new pricing, new organizational structures, new technological support and new analytical tools.

The ad business appears on the surface to be very different today than it was a decade ago. While the ecosystem has expanded dramatically, the basic foundation of the advertiser-media relationship has remained surprisingly stable and unaffected. The expansion of viewing platforms and the growth of DVR penetration are destabilizing the pillars on which the advertising business has rested for decades. It's a tribute to traditional networks and studios that they are best positioned to capitalize as these pillars continue to erode. But, as with any period of extreme disruption, there will be winners and losers.

Jack Myers serves as a member of the board of advisors and board of directors of companies mentioned in this report. For more information, visit www.jackmyers.com.

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