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The Polls are Closed: Video Wins!

BY HARRY PATZ JR.
“VIDEO KILLED THE RADIO Star.” Yes, it’s a moderately cheesy song one that (sorry) you’re probably now singing in your head.

But behind the catchy tune is an entirely serious message. The emergence of television really did bring an end to the era of radio stars, and, for all the sweet nostalgia of our grandparents, there is no going back to the old way of doing things. Or, as the song puts it, “We can’t rewind, we’ve gone too far.”

That song was released 1979. Back then, “video” was understood to be a reference to television. When digital marketers talk about “video” today, they’re typically referring not to television but to television’s competition, online or streaming video. And online video is now doing to traditional television what traditional television once did to radio. Online video might not bring an end to the era of television stars, but it is killing the distribution and advertising models that have long been a part of traditional television. If the trend continues, as almost all expect it will, this shift from traditional television to online video and streaming is likely to be every bit as monumental as the shift from radio to television was several generations ago.

TV GOES DIGITAL

How quickly is traditional television giving way to online video? The numbers speak for themselves. Over the last five years, total cable subscribers dropped by 6.7 million, and a quarter of millennials have never once subscribed to cable. No wonder, then, that Nielsen’s Total Audience Report from the first quarter of 2016 reveals that Americans age 18-24 are watching less and less traditional television each year. A comparison of first quarter viewing in 2011 and 2016 shows a drop of more than 10 hours per week, a 38 percent decline among the demographic. In the face of such compelling data, it’s hard to dispute the view of Netflix CEO Reed Hastings, who recently told the New York Times Magazine that he believes “all television will move to the internet, and linear television will cease to be relevant over the next 20 years.”

Hastings, of course, has benefited from the decline of traditional television more than almost anyone. After all, the move away from traditional television hasn’t been a move away from watching television program – ming in general, but rather a move towards streaming and watching online. Netflix now has more than 81 million paying subscribers and is producing hundreds of hours of original programming each year.

“All television will move to the internet, and linear television will cease to be relevant over the next 20 years.” – REED HASTINGS, CEO, NETFLIX

With respect to household penetration, streaming services have already caught up to DVRs, revealing that not even time-shifted traditional television is likely to survive the onslaught from digital video. Nielsen’s report also revealed that a full half of U.S. households with televisions now use streaming video services, an eight percent increase from 2015 alone. A Deloitte survey, in turn, found that among those between the ages of 19 and 32, more time is now spent watching streaming video than watching live television programming, which is often said to be traditional television’s one significant advantage over its digital competition.

MARKETING IN THE NEW ERA OF VIDEO

Considering how quickly television viewing habits are changing, it only makes sense that advertising models are changing as well. Marketers, to be sure, don’t want to abandon video commercials altogether. Whether an ad runs during a traditional television broadcast or on the internet, video spots remain tremendously valuable. Perhaps virtual ads will one day take advertising to an entirely new level, but for now, there is still no better way to make an emotional connection with consumers than through the sights and sounds of a well-produced video. So, the question for advertisers today isn’t whether they should continue to spend money on video ads, but rather how they should spend their video budgets in the new age of streaming and online watching.

In the old way of doing things, advertisers would buy up inventory on traditional television shows in advance, hoping that the audience for the show would match the audience they want – ed to reach. It was never an ideal model. Brands couldn’t be sure who was actually watching the show, and betting on which shows would generate a large audience was always more of an art than a science, particularly since shows are often conceived years in advance. Still, marketers stuck with this traditional television model of advertising for decades because, frankly, it was the only option they had.

PROGRAMMATIC VIDEO COMES OF AGE

Of course, as readers of this publication likely know, something interesting happened in the world of advertising over the last decade. As eyeballs shifted from pages to screens, programmatic advertising arose to take advantage of the new possibilities. Why target a magazine’s entire audience, the thinking went, when, thanks to cookies and other technologies, it was suddenly possible to target the specific people you most wanted to reach? As more and more opportunities for targeting arose, programmatic display advertising would soon become a multi-billion dollar industry. Once digital video began to take hold, it was only a matter of time before video advertisers would begin to ask an obvious question: Why shouldn’t video ads be targeted with the same precision as programmatic display units?

Skip ahead to today, and, sure enough, programmatic video is quickly taking over the industry. A recent Interactive Advertising Bureau survey of 360 industry professionals found that programmatic video spending is expected to come to 41 percent of the total digital video ad spend this year a 26 percent increase from only two years earlier. Meanwhile, eMarketer projections are even rosier. The latest numbers from the digital research outfit anticipate that U.S. spending on programmatic video will reach $5.51 billion this year.

Even with all that remarkable growth, programmatic video is still in its early years. Streaming services are experimenting with different ad formats. Newspapers, like the New York Times, which once treated video like an afterthought, are now beginning to produce better and longer video segments, opening the door to a future of much more premium programmatic video inventory. User generated content, in turn, will only continue to grow as smart phones transform every last one of us into a walking videographer.

INTENT KILLED THE TRADITIONAL TV MODEL

As it happens, the word “intent” appears in the second line of “Video Killed the Radio Star.” And, while the song’s writer certainly couldn’t have predicted it, that single word, perhaps more than any other, explains why advertisers are embracing a future where television is digital and ads are targeted.

“More than 20 percent of millennials are now estimated to rely exclusively on mobile for accessing the internet, and 72 percent of total mobile data traffic is expected to go towards video by 2019.”

“Intent,” in the digital marketing world, is shorthand for the signals consumers provide about how and where they’re likely to spend their money. Search marketing was so massively profitable because every time someone types in a search term, it’s a powerful intent signal about what they’re looking for. But search terms are only one way to infer a consumer’s intent. With each new year, programmatic, be it via display or video, has learned to capitalize on more of these signals, from the sites a user visits, to items placed in a shopping cart, even to offline purchases, which can now be anonymously matched to digital IDs.

Perhaps the biggest surprise of the shift to digital video is how quickly users have taken to watching on mobile devices as well. More than 20 percent of millennials are now estimated to rely exclusively on mobile for accessing the internet, and 72 percent of total mobile data traffic is expected to go towards video by 2019. Among other things, the rise of mobile video makes it possible for programmatic video marketers to narrow in on a user’s precise location and serve ads that are even more precisely targeted. How important is this shift? According to eMarketer projections, mobile video programmatic spending will exceed desktop video programmatic for the first time next year.

So, yes, video did put an end to the radio star. But, then, most would agree that traditional television was a big improvement over radio. Likewise, the shift to online video and streaming might cause some anxiety, but it’s making watching more convenient while making advertising smarter and more efficient. Let’s just hope this shift doesn’t inspire another pop song, as “Video Killed the Traditional TV Model” doesn’t make for nearly as good a lyric.

Download your copy of The Programmatic Mind Issue #11 at programmaticmind.com