Detecon Opinion Paper Big Deal or Bad Deal. Advertising in the NewTV age

8/8/2019 Detecon Opinion Paper Big Deal or Bad Deal. Advertising in the NewTV age

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Big Deal or Bad Deal

Advertising in the NewTV age

2008 / 11


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1 Detecon International GmbH

Table of Contents

1 Executive Summary.............................................................................................22 Boundaries are vanishing the rise of NewTV ................................................... 33 Approaching the challenge.................................................................................. 44 Results of the survey...........................................................................................4

4.1 The evolution to a NewTV world and its ad market. .................................... 44.2 The added value of technologies.................................................................74.3 The most attractive ad environments and ad formats..................................94.4 The essence..............................................................................................12

5 Challenges and recommendations.................................................................... 136 The Authors.......................................................................................................157 The Company....................................................................................................16


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1 Executive Summary

NewTV is seen as the future convergence scenario between traditional TV and

the Internet offering for moving pictures. NewTV video consumption is expected to triple by 2012.

Tracking and targeting are seen as major impact factors.

Growth in ad spending in NewTV will lag behind the growth in eyeballs.

NewTV marketers are expected to claim up to 20% of total ad spending.

Non-linear content is expected to have significantly stronger ad spending

growth than linear content.

Cross media packages and VoD are seen as the most attractive ad

environments.

Pre-/mid-/post-rolls will remain key revenue ad formats, interactive hyperlink

ads will become increasingly relevant.

Reporting enabled by tracking is expected to be worth a price mark-up of 5%,

starting at a critical mass of 500,000 users.

More than 10% price add-on is possible for targeted video ads while the critical

mass for target groups varies between 30,000 and 500,000 users.

Media agencies are still devoted to traditional channels and therefore represent

the bottleneck for NewTV-centric ad business models.


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2 Boundaries are vanishing the rise of NewTV

In the days of Plain Old Television, signals were distributed over dedicated networks. The

infrastructure was a closed system that was optimized for the broadcast of data from a singlesource to many receivers. In contrast the Internet is inherently an open bidirectional network

with non-discriminating data transfer based on the IP protocol. As faster data transmission

and better compression technologies provide the capacity to distribute large amounts of

data, video has found its way to the Internet. Though existing offerings cannot yet compete

with traditional distribution networks in terms of content and delivery quality, the Internets

open and innovative environment is a threat to the existing business models of all players in

the TV environment.

Integrates the Internet as an open and innovative platform

Advertisingopportunities

Analog Age IPTV Age NewTV Age

User-driven content

Personalization

Targeting

Interactive Services

On-demand services

Multi Channels

In

teraction

Evolutionpath

Integrates the Internet as an open and innovative platform

Advertisingopportunities

Analog Age IPTV Age NewTV Age

User-driven content

Personalization

Targeting

Interactive Services

On-demand services

Multi Channels

In

teraction

In

teraction

Evolutionpath

Figure 1: Increasing advertising opportunities along the TV evolution path.

The first technological step beyond the traditional Plain Old TV age can be seen as IPTVusing the IP protocol in a closed distribution network. This allows interactive services on the

application layer in combination with the accustomed quality of experience. But the walled

garden environment is limiting the development of innovative services.

The next step in the natural evolution, which Detecon calls NewTV, will provide comfort,

content and technical quality along with the innovative power of the open Internet. Technical

provision of content and services will no longer be a restrictive or visible factor for the user.

Alongside the increased diversity of content, the viewer will have the options of remaining

passive or (inter)acting in the way that they are accustomed to from the Internet.


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While today the majority of content on the TV screen is consumed in a passive lean back

modus, we expect that, driven by the users experience from the Internet, media

consumption will migrate to become more interactive (media consumption on demand and

media participation via communities, active communication, ). The trends we see in the

Internet today toward creative socializing, interactivity, personalized content delivery, and

better consumer control will have a strong impact on the NewTV world.

The prevailing business model in todays TV and Internet worlds is ad funded and it will

remain predominant in the NewTV world under new technological and behavioral conditions.

As the consumers behavior is changing and the technology developing to permit new ad

concepts, media agencies, marketers and publishers are faced with the challenge of

developing sustainable business models and ad concepts for the NewTV world. Traditional

ad revenues are already falling and many of the skills and capabilities that were the

foundation of success in the past will need refinement, transformation or even outrightreplacement. Traditional paradigms are being interrupted while there is considerable

pressure to adapt to new ad-based business models and ad formats using advanced

technological solutions.

3 Approaching the challenge

To demystify the evolving scenario and evaluate areas of business potential Detecon has

carried out selected senior media expert interviews with industry representatives, from media

agencies and marketers through to publishers. The survey focused on facts and figures on

market development, and trends and product innovation in the TV, Internet and NewTV

advertising hemisphere. Furthermore, we looked at altering ad formats as a part of thechanging value proposition and determined impacts on current business models. Based on

the survey results Detecon has identified and derived the key challenges and implications for

each market player. In conclusion we provide strategic recommendations for market players

to be prepared for the new and fast moving NewTV environment.

4 Results of the survey

4.1 The evolution to a NewTV world and its ad market.

The first part of the interview-based expert study deals with the development of a NewTV

world which creates a new ad market space. As indicators of the general marketdevelopment we asked the experts for their opinion on expected growth in online video

consumption and shifts in the proportion of linear to non-linear video consumption in the next

five years.

In line with our previously developed NewTV scenario, a strong increase in online video

consumption is expected by the experts. The mean of the growth for 2010 and 2012

expected by the interviewed expert groups indicates a CAGR of 144%, which is illustrated in

Figure 2. Publishers believe that online video consumption will develop even faster, but this

has to be seen in the context that some of the interviewees are already doing business in

this market and are therefore more optimistic.


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7046

339

2010

152

74

221

2012

513

269

PublishersMarketers

Media Agencies

30 17

89

2008

45

How do you expect online video consumption to evolve in the next 5 years? (in %)

Online video consumption growth (in %)

CAGR 144%

7046

339

2010

152

74

221

2012

513

269

PublishersMarketers

Media Agencies

30 17

89

2008

45



CAGR 144%



CAGR 144%

Figure 2: The expected development of online video consumption.

Regarding key impact factors that will drive the development of an emerging NewTV ad

market, the experts most often stated that tracking and targeting are important. This is

shown in Figure 3. Tracking provides the exact measurement of the audience reached and it

also allows users usage patterns to be recorded and the users to then be assigned to

specific user profiles. Tracking is needed for targeting-based advertising delivery, which uses

these user profiles to achieve better conversion rates for advertisers.

Which will be the key impact factors for video advertising caused by NewTV?

Key impact factors for NewTV advertising

Tracking Targeting On-Demand All IP PSN*

All

Less Important

Important

Media Agencies

MarketersVery Important

Publishers

Not Important

Rating

Impact Factors

*PSN: Personal Social Network

Which will be the key impact factors for video advertising caused by NewTV?

Key impact factors for NewTV advertising

Tracking Targeting On-Demand All IP PSN*

All

Less Important

Important

Media Agencies

MarketersVery Important

Publishers

Not Important

Rating

Impact Factors

*PSN: Personal Social Network

Figure 3: Key impact factors for NewTV advertising development.

When asked what the main obstacles in the evolution towards the NewTV environment are

seen to be two main aspects were mentioned: limited access to the consumer via proprietary

set-top boxes, and limitations in the interoperability of different software solutions.


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Detecon believes that future content offerings will be a combination of linear and non-linear

content in a non-walled garden environment as already offered by online video providers.

The strong growth in online video consumption mentioned above is coherent with the results

regarding the future video consumption mode. Non-linear video consumption will play a

much more important role than it does today.

Non-linear content consumption will reach a share of 30% of total video consumption in 2012

according to the experts. This shift in users behavior will result in an increased demand for

NewTV platforms, such as the online video described above, as well as other platforms like

IPTV which could then lead to a significant uptake in subscribers.

The experts were also asked how ad spending will be split up between linear and non-linear

content offerings. In contrast with the 30% share of non-linear video consumption expected,

the expected share of ad spending is only 17%. Even though this is a respectable amount of

money, it does show that eyeballs for non-linear content are underrated and thus represent

an opportunity for New TV players. These findings are shown in Figure 4.

Gap between video consumption & ad spendingDevelopment of content consumption (in %)

8

17%

5

8%

30%

0

10%

15%

20%

25%

30%

5%

5

Past

13%

Today 2012

video consumption

ad spending

1313

87

70

30

Lin

Non-Lin Today

2012

-17

+17

4

96

13

87Lin

Non-Lin Today

2012

-9

+9

video consumption

Ad Spending

Gap between video consumption & ad spendingDevelopment of content consumption (in %)

8

17%

5

8%

30%

0

10%

15%

20%

25%

30%

5%

5

Past

13%

Today 2012

video consumption

ad spending

1313

87

70

30

Lin

Non-Lin Today

2012

-17

+17

4

96

13

87Lin

Non-Lin Today

2012

-9

+9

video consumption

Ad Spending

Figure 4: The gap between linear and non-linear video consumption and ad spending.

To get a more precise idea of how and to whose benefit the developments in the advertising

market in a NewTV world will shift, four different scenarios were put up for discussion. In the

first scenario (Classic TV only) there is almost no change with regard to the ad market, whichis still heavily dominated by traditional players representing the old TV world. The second

scenario (NewTV) describes a market development where NewTV players gain a significant

(50%) market share due to their technical capabilities. The third scenario proposed (Partly

Substitution), assumes that traditional TV players will still dominate but will lose some market

share to NewTV players. The last scenario (Win-Win) envisages market developments

leading to a win-win situation with an increased market volume.


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As Figure 5 shows, the experts favor the Partly Substitution scenario which is accompanied

by a shift in revenues from traditional to new players. The potential of this shift in revenues

was estimated by most of the experts to be between 10 and 20%.

33%

69%

87%

12%

47%

25%

13%

18%

Likely

Not Likely

100%

6%Classic TV

NewTV

70%Partly Subs.

20%Win-Win

Very Likely

33

67

0

13

2544

19

0

0-5%

33

5-10%

50

29

10-20%

17

29

20-30% >40%

All

30-40%

Marketers

29

Publishers

Media Agencies

Development of the NewTV ad market

Most likely market scenario in 2012 Level of Substitution (in %)

33%

69%

87%

12%

47%

25%

13%

18%

Likely

Not Likely

100%

6%Classic TV

NewTV

70%Partly Subs.

20%Win-Win

Very Likely

33

67

0

13

2544

19

0

0-5%

33

5-10%

50

29

10-20%

17

29

20-30% >40%

All

30-40%

Marketers

29

Publishers

Media Agencies

Development of the NewTV ad market

Most likely market scenario in 2012 Level of Substitution (in %)

Figure 5: Market scenarios and level of substitution.

Conclusion: NewTV will be here very shortly the consumer is ready for it, now the right

offers combined with the right ad formats are essential!

4.2 The added value of technologies

According to the experts the key drivers for the development of the NewTV ad market are

tracking and targeting. Opinions concerning the financial impact of tracking differ among the

experts depending on their companies positions in the value chain. While marketers believe

that the additional value of tracking is lower than 4%, media agencies and publishers are

more optimistic. To employ tracking technology a critical audience mass forecasted at

around 500,000 users has to be reached. These results are presented in Figure 6.


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How high do you estimate the critical mass for

attractive tracking to be? (in number of users)

Tracking: Critical mass by group

How high do you estimate the added value of

tracking to be? ( in % price increase)

Tracking: Value by group

All

Media Agencies

Marketers

Publishers

0-1%

2-3%

3-4%

4-5%

5-10%

>10%

All

Media Agencies

Marketers

Publishers

0-10k

10k-100k

100k-500k

500k-1.Mill.

>1Mill.

Figure 6: The additional value and critical mass of tracking.

As described above targeting especially is seen as a key impact factor. This statement is

supported by the results concerning the importance of targeting given in Figure 7. These

demonstrate that its relevance is limited today but that this will change over the next five

years.

How high do you see the relevance of targeting to be?

Targeting: Relevance barometer

All

Media Agencies

Marketers

Publishers

No

Limited

High All

Media Agencies

Marketers

Publishers

No

Limited

High

Today 2012

Figure 7: Relevance of targeting today and in 2012.

As for tracking, the experts were also asked to quantify the additional value of targeting. The

answers given in the interviews indicate that it allows premiums of over 10%. This is of

course only possible if the ad successfully targets an attractive target group. The size of

these target groups can vary from 30,000 to 500,000 users depending on their quality and

level of specificity. These findings are illustrated in Figure 8.


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What do you expect to be the minimum relevantgroup size for targeting? (in number of users)

Targeting: Critical mass by group

How high do you see the added value of targetedvideo ads to be? (in % price increase)

Targeting: Value by group

All

Media Agencies

Marketers

Publishers

0-1%

2-3%

3-4%

4-5%

5-10%

>10%

All

Media Agencies

Marketers

Publishers

0-10k

10k-100k

100k-500k

500k-1.Mill.

>1Mill.

Figure 8: The additional value and critical mass of targeting.

Conclusion: Reaching a critical mass along with the timely preparation of tracking and

targeting are the main variables influencing direct advertising revenues.

4.3 The most attractive ad environments and ad formats

When looking at formats and tariffs the different factors influencing the value proposition of

ad space and their development have to be considered. Regarding ad prices the quality of

the content it surrounds, the attractiveness of different content formats (ad environments),

and the tracking and targeting technologies are relevant subjects. The attractiveness of

different ad formats was determined by asking the experts to assess their acceptance by

users and their expected sales volumes.

To evaluate the potential of different types of content quality the experts were asked how

they expect ad prices (in %) for both linear and non-linear consumption to develop. For linear

content the trend shows stagnating or somewhat falling prices. For non-linear content the

experts forecast an increase in ad prices of at least 5 to 10%. Only user generated content is

seen less optimistically, with stagnating ad prices, as this type of content is judged to be very

risky from a quality and context perspective. This result is illustrated in Figure 9.


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User GeneratedProfessional Content Semi Professional Editor Generated

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ar

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User GeneratedProfessional Content Semi Professional Editor Generated

Line

ar

Non-Linear

All

All

Figure 9: Development of ad prices in relation to content quality.

Besides the quality of content the ad prices also depend on the environments (formats) of

the content that they are inserted in. In the experts opinion cross-media packages are the

most attractive ad environment, followed by VoD and live-streams. These findings are

illustrated in Figure 10.

Which will be the most attractive environment for video ads in the future?

Attractiveness of ad environments

31%

15%

50%

27%

36%

53%

23%

8%61%Video-podcast

62%VoD

50%Live-stream

20%Video-clips

64%Cross-media packages

Highly attractiveAttractive

Not attractive

100%

Which will be the most attractive environment for video ads in the future?

Attractiveness of ad environments

31%

15%

50%

27%

36%

53%

23%

8%61%Video-podcast

62%VoD

50%Live-stream

20%Video-clips

64%Cross-media packages

Highly attractiveAttractive

Not attractive

100%

Figure 10: Attractiveness of different ad environments.

The last part of the analysis of formats and tariffs deals with the attractiveness of different

kinds of ad formats from the viewers perspective as well as from the advertisers point of

view.


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Conclusion: Formats that the users know from the Internet and that are perceived to be

non-intrusive will gain most consumer acceptance.

4.4 The essence

The expert interviews provided answers to questions concerning the market evolution for

NewTV ads. There is significant market potential, especially for players that can take

advantage of the evolution by applying key impact factors to leverage their opportunities.

These opportunities stem from the dynamics of the shift in market shares and the additional

potential of undervalued eyeballs in the nonlinear ad market.

Implementing and applying key impact factors like tracking and targeting will play a major

role. But also the provision of attractive ad environments, preferably in combination with

different distribution channels, will make the difference. Last but not least, the finding that

with regard to ad formats video hyperlinks and different kinds of x-rolls will be the revenuedrivers in the near future is worth mentioning.


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5 Challenges and recommendations

The above summarized findings pose challenges to all players along the advertising value

chain. In the developing NewTV ecosystem players from the traditional television advertisingworld will not only compete with their existing rivals but also with successful players coming

from the online advertising environment. This market convergence drives competition but

also creates opportunities as new distributors and publishers offer new channels to raise

business potential. The development of business potential using partnering strategies and

experimenting with formats and distribution channels will be critical to success. As time is a

limiting factor, players should start preparing themselves as soon as possible to be able to

outperform their competitors along the value chain. As partnering and the coordination of

processes and technology become more important the value chain will turn into a value

network. This development is illustrated in Figure 13, which also provides a structure for the

recommendations.

Media agencies

Advertiser

Marketer

Publisher /

Distributor

Viewer /User

Advertiser:Provides ad funding, orders adcampaigns

Media agencies:Develops and controls ad campaigns

Marketer:Develops formats and sells ad space

Publisher:Provides ad space within their contentenvironment

Distributor:Provides technical platform for contentdistribution and data gathering

Advertising

value web

Media agencies

Advertiser

Marketer

Publisher /

Distributor

Viewer /User

Advertiser:Provides ad funding, orders adcampaigns

Media agencies:Develops and controls ad campaigns

Marketer:Develops formats and sells ad space

Publisher:Provides ad space within their contentenvironment

Distributor:Provides technical platform for contentdistribution and data gathering

Advertising

value web

Figure 13: Actors in the advertising value chain

Media Agencies:

New business models and formats must be created and developed specifically

for the NewTV environment. These should reflect new capabilities like

multichannel distribution, targeting & tracking, and interactivity.

New organizational structures need to be implemented that take into

consideration the converging media landscape. Present silo structures do not

support the NewTV environment appropriately.


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6 The Authors

This Paper was written by Detecons Center of Excellence New Media - a worldwide

network of highly motivated consultants combining a deep-rooted understanding of globaland regional media market trends with world class technology competence. The Center of

Excellence provides Detecons clients with direct access to the latest technology and market

trends from the most dynamic world regions.

Stephan Dieterleads the Center of Excellence NewMedia. He has more than ten years of

professional experience in the media and communication industry focusing on business and

innovation strategies.

He can be reached at: +49 89 546365-0 or [email protected]

Moritz Gruener works in the Strategy & Marketing Group within Detecon. His areas of

expertise are new media services and products with a particular focus on content distribution

platforms.

He can be reached at [email protected]

Matthias Schmidt also works in Detecons Strategy & Marketing Group. He focuses onbusiness innovation and the role of disruptive changes in the media industry and contributes

to the Center of Excellence for New Media regarding topics such as advertising and IPTV.

He can be reached at [email protected]


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7 The Company

Detecon International GmbH

Detecon International is a leading worldwide company for integrated management and

technology consulting founded in 2002 from the merger of consulting firms DETECON and

Diebold. Based on its comprehensive expertise in information and communication

technology (ICT), Detecon provides consulting services to customers from all key industries.

The company's focus is on the development of new business models, optimization of

existing strategies and increase of corporate efficiency through strategy, organization and

process improvements. This combined with Detecon's exceptional technological expertise

enables us to provide consulting services along our customers' entire value-added chain..

The industry know-how of our consultants and the knowledge we have gained from

successful management and ICT projects in over 100 countries forms the foundation of our

services. Detecon is a subsidiary of T-Systems, the business customers brand of Deutsche

Telekom.

Integrated Management and Technology Competence

We possess an excellent capability to translate our technological expertise and

comprehensive industry and procedural knowledge into concrete strategies and solutions.

From analysis to design and implementation, we use integrated, systematic and customer-

oriented consulting approaches. These entail, among other things, the evaluation of core

competencies, modular design of services, value-oriented client management and the

development of efficient structures in order to be able to distinguish oneself on the market

with innovative products. All of this makes companies in the global era more flexible and

faster at lower costs.

Detecon offers both horizontal services that are oriented towards all industries and can entail

architecture, marketing or purchasing strategies, for example, as well as vertical consulting

services that presuppose extensive industry knowledge. Detecon's particular strength in the

ICT industry is documented by numerous domestic and international projects for

telecommunications providers, mobile operators and regulatory authorities that focused on

the development of networks and markets, evaluation of technologies and standards or

support during the merger and acquisition process.


Oberkasselerstr. 2

53227 BonnTelefon: +49 228 700 0

E-Mail: [email protected]

Internet: www.detecon.com


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Detecon Opinion Paper Big Deal or Bad Deal. Advertising in the NewTV age

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