Revolution in a Box

Get ready, because in five years, half of TV ad budgets are going to shift over to online video.   

I know what you’re thinking — uh huh. Are people suddenly going to abandon the viewing habits they’ve had for eons, dump their TV sets and start watching videos on their computers instead? Well, no. But at a surprisingly quick rate, and without any major change in consumer behavior, living-room TV sets across America will become online video delivery devices.

My prediction is not as surprising as it might look. In fact, it’s quite conservative when you consider the historical adoption of other, related technologies. For example, DVD players were in 70 percent of American TV households by 2004 — only six years after their commercial introduction.

There are several different ways the transition could play out, but the outcome is the same: Internet-enabled TVs will find their way into most American homes.

In one scenario, large numbers of viewers will learn to use the built-in Internet capabilities available in most new TVs in a way that complements their consumption of broadcast video. Alternatively, the aggressive new breed of “over-the-top” video providers, such as Google TV, Apple TV and Netflix, may win over American consumers with their promises of free, on-demand video. Most likely, however, I predict that cable operators and alternative delivery systems, in a concerted effort to preempt this onslaught and retain their subscription businesses, will rapidly replace today’s set top boxes with units that combine broadcast, DVR and online video in a single box.

But I still haven’t quite made my case. After all, it’s one thing to predict that most living rooms will become online video enabled, yet quite another to contend that half of video consumption will jump from broadcast TV to online.

Fortunately for me, two other trends support my assertion. First, millennials (you know, that golden demo born sometime between the early 1980s and the late 1990s) already watch a growing amount of video online. Right now, 29 percent of consumers under 25 do, according to eMarketer. But over the next five years, this group will mature and make up a growing portion of U.S. households.

Second, the user interface on set top boxes will vastly improve by automatically recommending content and making it easier for all viewers-including the less tech-savvy baby boomers-to choose online video over broadcast. Imagine the scenario: When you flick on your TV, you see a welcome screen that includes an option to watch, immediately, on demand, the next episode of your favorite show.

Or you could always spend a half an hour trolling the broadcast channels in hopes of finding something you’ll like. Which one’s the more likely outcome?

This coming revolution is, of course, an opportunity for advertisers. As viewership shifts to online video, so do the ad budgets — and there’s an opportunity for greater efficiencies too. Used properly, online advertising can precisely target audiences, measure reach and effectiveness, and maximize campaign performance in a way broadcast TV never could. Buyers can target and pay for only the audiences they want to reach and then measure every aspect of the campaign’s delivery and performance, including how consumers in different segments respond to the various ads.

To date, most agencies have dubbed online video “experimental,” and little wonder: The size of the online video-ad market is admittedly small. But the impending, rapid migration of TV spending (by far, the largest and most lucrative budgets) demands a greater level of attention and resources.

If they plan to hold onto TV budgets as the online shift transpires, agencies had better demonstrate their expertise in leveraging these technologies to create value for advertisers. The leading firms will know how to collect and manage their clients’ audience data across multiple campaigns, perform dynamic bid optimization across multiple video ad exchanges and use analytics to provide insights on campaign performance. Those that can’t will be left holding only broadcast TV budgets — shrinking ones.