With Upfront Ad Dollars Shrinking, CTV Could Bring Much-Needed Flexibility to TV Buying

However, supply and demand constraints complicate connected TV programmatic buys

The TV industry's embrace of ad tech poses a pricing dilemma to buyers and sellers.
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The coronavirus pandemic has blown a big revenue hole in one of the most reliable periods in advertising: upfronts season. The TV ad market has been upended, with advertisers planning to spend one-third less than usual in this year’s upfront due to the uncertain economy, which has also left networks scrambling to reassess their schedules after live sporting events were canceled and production sets shut down.

At the same time, stay-at-home orders have led to a spike in TV viewership, especially on connected TVs where minutes spent streaming has nearly doubled since this time last year. On top of that, the six biggest MVPDs lost over 2 million pay-TV subscribers combined in the first quarter.

Changes in supply and demand

The rise of connected TV viewing and the decline of linear TV audiences, all while ad budgets are wrapped in a shroud of coronavirus-related uncertainty, has both buyers and sellers yearning for more flexibility, according to Kevin Arrix, svp of media sales at Dish.

“The current situation is going to change how much marketers are willing to put down [upfront], and what kind of flexibility they get around options, but the whole concept of the upfront—at its core—is still the same, which is supply and demand,” he added.

Some advertisers have begun calling in their third quarter options, stipulations in upfront contracts that let buyers pull their commitments a certain amount of time in advance. Major brands including PepsiCo and General Motors are set to cancel up to 50% of their third quarter ad spend, amounting to an estimated pullback of over $1 billion, according to The Wall Street Journal, though some ad sales execs—including A+E Networks ad sales chief Peter Olsen—told Adweek that advertisers are taking a smaller cut of their third quarter options than initially feared.

One TV buyer, speaking on condition of anonymity, said the current economic uncertainty is spurring change as the sell side seeks to accommodate buyers’ altered spending plans.

“We are looking at things very differently. … You need to be able to move your money, whether it’s across the [network’s] portfolio of products or to another quarter,” said the buyer. “[Media owners] are trying to do TV-like deals, and I think buyers want to do digital-like deals. There is a little bit of a struggle there, so we’re trying to figure that out. I don’t think any new medium should be bought like TV if it can help it.”

Ad tech at the upfronts poses a dilemma

Advertisers buy during the upfront to secure high-value inventory, such as sports and primetime programming, as well as to lock in discounted rates. Media owners sell massive amounts of inventory at a discount because there’s value in having revenue on the books.

However, ad tech is bringing digital-like ways of buying into the linear marketplace, with some claiming that the technology could obscure the initial value proposition of the upfronts.

CTV offers more flexibility than linear since it lets buyers reallocate spend on the fly using granular audience data through programmatic pipes. For example, ad servers like FreeWheel (a sister company of NBCU) and SpringServe are in market with header bidding technology that lets media owners assess whether an ad impression will deliver more yield if it is sold directly, or via an ad auction.

Now buyers and sellers are essentially left with a philosophical dilemma: Do they commit dollars in the upfront, where inventory is guaranteed, but sold at a discount? Or do they focus on executing flexible, cost-effective programmatic buys on the scatter market where prices are more volatile?

Networks are already considering how to include all available inventory in the upfront season, according to Geoff Wolinetz, head of sell-side revenue at FreeWheel. “The notion of expressing the value of their upfront deal across multiple platforms is not new. … What’s new is the notion that they can do it programmatically and efficiently through PG (Programmatic Guaranteed) and PMP (private marketplaces),” he added.

Travis Hockersmith, vp of platform services at smart TV company Vizio, told Adweek the sell side is faced with a tradeoff between the potential to further maximize yield and more predictable revenue streams. “There is a premium placed on the ability to bring in predictable revenue streams. If that means you’re going to trade off a little bit of margin for that predictability, there’s going to be a lot of publishers who are going to elect to do what’s necessary to drive a little bit of predictability,” he said.

The economics of TV buying, whether CTV or linear, are still driven by scarcity. Changes in supply and demand (as digital ad inventory is included as part of upfront deals) make it more difficult for media buyers used to finding high-value audience on the programmatic open market.

Media owners told Adweek they prioritize securing programmatic buys upfront via programmatic guaranteed deals instead of selling inventory real time in the open marketplace. Dish’s Arrix said the majority of “quality CTV” inventory is not available in the open marketplace.

Using ad tech to extend reach

NBCUniversal claimed it will boost its programmatic offering during a virtual ad sales presentation it made Monday, during what would have been its annual Radio City Music Hall upfront event. The company will be rolling out an audience network of mostly long-form, CTV inventory across a slate of publisher partners that will be announced later this summer.

“The audience network will be open for business in both the upfront and scatter markets, and will be available to transact on both a managed service and programmatic basis. We don’t have plans for an open exchange,” said Krishan Bhatia, evp of business operations and strategy at NBCU.

Media owners also prioritize direct buys and PG deals to avoid the transparency issues of programmatic advertising that plague the digital ecosystem.

“The only way advertisers can be sure they’re buying NBCUniversal content is to buy from us, whether through direct IOs or programmatically. Third-party platforms have limited or no access to our inventory and are restricted from guaranteeing against NBCUniversal content or offering transparency into where an advertiser’s campaign ran,” Bhatia said.

The scatter market is typically any inventory transacted outside of an upfront commitment. Buying scatter can give advertisers flexibility, but it still takes time to execute on linear.

“The scatter market we deal with on the linear side of our business can take place anywhere from a quarter ahead up to a couple weeks in advance of air,” said Ken Ripley, vp of sales at E.W. Scripps-owned Newsy. “Whereas on the programmatic streaming side, or just the streaming side itself, we can accept a piece of business this morning and run it this afternoon. You have a much tighter turnaround on the CTV side.”

Expect the CTV market to become more like digital

Not all inventory is available at a moment’s notice. A second TV buyer told Adweek that there’s currently a ton of supply at “advantageous rates” on CTV due to the downward pressure on inventory costs caused by the Covid-19 pandemic, so programmatic offers good “bang-for-your-buck.”

However, once advertisers start coming back and TV viewing returns to normal, that shift in supply and demand means an increase in bids, driving up costs and giving value back to the upfront. “If supply starts going down, it’s imperative that the upfront deals still deliver,” said the second buyer, adding that real-time buys are often executed to take advantage of a spike in impressions, such as high viewership of marquee sporting events.

Vizio’s Hockersmith said, given the pandemic, now is an opportunistic time to buy broad audiences programmatically in the open market, but adding targeting constraints lowers the chances of that inventory being available.

While the vast majority of TV viewing still happens on linear TV—it’s a $70 billion market, compared to less than $9 billion in CTV—changing consumption habits and buyers’ calls for flexibility likely mean TV will one day be bought and sold like digital.

“It’s not going to be any different than it currently is with digital. Digital, you can do direct buys, you can do sponsorships, you can do content, and you can also buy programmatic,” said the first buyer. “I don’t see it being any different than the way the digital market runs. I think maybe the universe of CTV is a little bit smaller, unlike the internet.”

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