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Programmatic vs. Addressable for Dummies

Television advertising has had a long history of targeting based on age and gender. While other media types moved on to more sophisticated segmentations, TV advertising was trapped in this old model due to the lack of detailed audience statistics and targeting capabilities. Even if the audience were known, it was impossible to target the desired audience without producing significant wasted reach. That is why many age and gender-based campaigns combined Nielsen cohorts to provide a larger “target” audience. This practice may have reduced wasted reach on paper but reduced effectiveness since the true audience was merely a subset of what was targeted. New processes and technologies have emerged allowing for greater targeting and measurement, the two predominant being programmatic and addressable.

Programmatic Advertising

In the context of TV advertising, there are many definitions of programmatic ranging from a simple technical integration of the buying and selling platforms all the way to an auction-based system. The industry seems to be settling on a simple but meaningful definition:

Programmatic Advertising:  The use of STB data to inform the purchase process. 

In today’s world, programmatic vendors use STB data to forecast avails with the highest concentration of the desired audience and then purchase those spots.  The process is made possible because of the vast amounts of viewership data available and the richness of the data set.  Instead of reviewing ratings by Nielsen cohort (age/gender), advertisers can analyze viewership data by a wider set of attributes. For example, a minivan manufacturer may define its target audience as auto intenders with a minimum income of $75,000 and at least one child in the home. Previously the advertiser may have used an age and gender proxy of women 25-34 and settled for a fairly low percentage of its true target audience.

The primary benefit of programmatic advertising is the reduction of wasted reach. By increasing the percentage of the true audience from just 8% to 15%, an advertiser sees a near doubling in the efficiency of the campaign–a dramatic increase in efficiency for a small increase in cost. An additional benefit of programmatic is the ability to be more precise with segment definitions, narrowing the target audience to those most likely to respond to specific advertisements. This narrowing must be balanced against the possibility of reducing the potential viewers too much, so that each spot does not significantly contribute to campaign objectives. The more spots required to reach the target audience, the more likely it is to show the ads to the same audience members over and over. Audience fragmentation virtually guarantees there is no way to ensure the unduplicated reach that is desired, and increases the potential for viewer burnout.

The benefit of programmatic advertising for the advertiser is clear: Reducing waste by even a few percentage points allows for gains in ROI – as long as the advantage is not cancelled by a commensurate increase in media cost. Given the costs of using a third-party programmatic buying platform, only a marginal increase in rates charged by MVPDs is allowable. In fact, INVIDI has learned through its advisory board that advertiser willingness to pay for programmatic inventory only increases by 5% – 10%. Most of the advantages are disproportionately experienced by the advertisers and, of course, programmatic vendor agencies.

Addressable Advertising

Programmatic advertising increases the odds of reaching true target viewers by using actual data and not merely a proxy. But no matter how good the data, there will be wasted reach and the more narrow the segmentation, the more wasted reach will be created. What is needed is the ability to send ads ONLY to those viewers within the target audience.

Enter addressable advertising.

Technology has advanced to the point where ads can be delivered on an individual STB basis. Advertisers can now buy audiences instead of programs. Unlike programmatic advertising, there is no need to preselect avails. There is no need to forecast who will be watching. There is no need to experience the wasted reach associated with spot buying. The system determines audience composition in real time and then chooses the most appropriate ads. Each individual advertiser reaches only those households that qualify.

As with programmatic advertising, the system must provide the required reach and protect against viewer burnout. This is a core strength of addressable advertising, which uses frequency caps to ensure a smooth distribution of impressions across the subscriber base. Addressable advertising systems go further, allowing advertisers to set a minimum time between viewings (separation) regardless of the programs being watched. These capabilities eliminate the worry associated with the small, well-targeted campaigns mentioned above. There is no issue with wasted reach or viewer burnout. Advertisers are not forced to expand their segments due to the constraints associated with spot buying.

Moneywise, everyone’s a winner:.

  • Advertisers pay less for each targeted impression on an effective CPM (eCPM) basis since virtually all wasted reach is eliminated. This discount varies based on the availability of the target audience but the market seems to be pricing eCPMs at around a third less than current linear CPMs.
  • MVPDs win since the revenue per avail increases greatly. Unlike programmatic advertising, addressable advertising allows for multiple ads to be delivered in the same avail. There is no need for any one advertiser to purchase the complete avail since the unused viewers of one campaign can see ads from other campaigns. Each individual advertiser gets only those households they want to reach. The MVPD monetizes the remaining viewers by selling them to other advertisers.
  • Viewers win because they get to see TV spots more relevant to them.In other words, fewer diaper ads if there are no babies at home.

Depending on the implementation, the number of ad alternatives can range from just a few to hundreds. Most terrestrial TV delivery systems providing addressable advertising have chosen to enable all their STBs and use the cable plant to deliver ad alternatives. The number of options is typically limited to between four and ten per break. Satellite providers use the DVR as a storage mechanism and preload relevant ads. This allows them to have a much larger pool of ads from which to choose; the more ads that can be sold into a given avail, the greater the potential to sell all available impressions.

Transitioning from Programmatic to Addressable

One of the largest drivers behind programmatic advertising is the slowness of the MVPDs to deploy addressable advertising. While there are already more than 30 million homes delivering addressable, the remaining 75 million pay TV homes are not. For these latter homes, programmatic advertising is the best they can do.  Advertisers want to maximize reach and will continue to use programmatic until they see significant mass behind addressable. Vendors such as Adap.tv, clypd, and Videology all have programmatic offerings, and rightly so. But the tide is turning.

Addressable advertising is rapidly gaining momentum. MVPDs representing more than 70 million homes have embraced addressable advertising and are expected to deploy systems within the next two years.  Advertisers have begun to experience the benefits of addressable advertising with more than 90% continuing or expanding their addressable campaign expenditures. This is putting pressure on the rest of the MVPDs to do the same. It is also pushing programmatic advertising platforms to expand into addressable advertising. Several have already announced addressable efforts and others have plans yet to be announced.

In short, both programmatic and addressable advertising have a place in the market. Programmatic will continue to be the best way to squeeze additional results out of legacy, avail-based systems while addressable advertising represents the newest and best way to use television.

Written by Michael Kubin