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

However, supply and demand constraints complicate connected TV programmatic buys

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The TV industry's embrace of ad tech poses a pricing dilemma to buyers and sellers.
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Key insight:

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.

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