TV Advertising: The Impact of Video on Demand and Streaming on TV Ads

TV advertising is being impacted by video-on-demand and streaming services.

TV advertising is changing quickly and huge opportunities exist. Netflix launched its first subscription-based video streaming service almost 13 years ago, laying the foundation for a massive transformation in the way we watch TV. 

YouTube has already been there during that time, and Hulu followed suit soon after. The competition is getting fiercer with new entrants like Apple TV, Disney +, NBC universal entering the market, and fighting to win new subscribers. And now Peacock!

If you are thinking about how to start a video-on-demand business, you also need to learn about market trends and competitor’s positions in the industry to secure your spot in the competitive industry. 

Collectively these videos on demand and streaming services are spending billions of dollars every year on original series and shows. So one common question that arises is that this would be bad for the TV industry, right? Especially for TV advertisers as less viewership implies fewer opportunities to sell. In this blog, let’s look into the impact of video streaming on TV advertising in depth. 

Viewers prefer an ad-free viewing experience

tv ads

Let’s get real. If given a choice, viewers don’t prefer watching ads in between videos. Currently, existing video streaming services like Netflix and Amazon Prime are inherently ad-free. Whereas other streaming services like YouTube, Hulu have ad-free options for a subscription-free. 

With continued ad price inflation for linear TV and viewers increasingly choosing to go no-advertising mode. Where’s an advertising brand to go to? Despite the increasing number of ad-free video-on-demand services, there are still many existing and new platforms on which TV advertisers can run their spots.

One exception of advertising-free streaming service is a new VOD player Quibi which is to be launched in 2020. This mobile-only streaming service has already announced it has sold out its $150 million advertising inventory to brands, including General Mills, Walmart, Taco Bell, PepsiCo, etc.

Additionally, Roku has also announced its acquisition of Dataxu, a demand-side platform that will position the connected TV platform that is already one of the most significant ad selling spaces. Roku is planning to expand its services beyond its platform.

YouTube is a great advertising platform and youtube ads can boost traffic quickly.

However, in spite of all these ad-supported video streaming choices, businesses are still not leveraging the full benefits of connected TV ad opportunities. This situation is expected to change in the coming years. 

Let’s peeks a the cost of TV advertising

For local television stations, advertisers can expect to pay a minimum of $5 per 1,000 viewers for a 30-second commercial. Based on data provided by Adage, a 30-second spot broadcast nationally averages around $115,000 in 2019. The average cost placements for 30-second Super Bowl ads can go for upward of $5.25 million.

Advertisers are taking their spend to digital

TV advertisers are well aware of the fact that subscription video streaming services are hurting their TV spots. The TV advertising scene is seeing a steep decline that is repeated across the globe. 

But TV advertisement budgets do not disappear. It is reallocated in other places. So, where is the money earned out of the TV budget going? It is going to different channels with digital advertising. For example, both Facebook and Google are trying to create TV-like offerings to retain users in their ad rich space and are ready to capture TV ad bucks.

Their plus point is the capability to target individual viewers that is a highly attractive prospect for advertisers. Moreover, the tech giants will start purchasing broadcasting rights to major events like sports. All this implies that the TV’s dominance of advertising bucks has paved the way for digital.

How media owners and creators are responding?

top tv ads

TV media owners are focusing on transforming their strategies to survive this shift. For instance, Disney, with Disney Plus, is trying to become both content owner and a distributor and is planning for two streaming services-one for film and one for sport. 

At the same time, NBC Universal is cutting down the number of commercials it airs during its prime time to enhance the impact of advertising. 

Indeed, TV advertisers are starting to review their digital assets as some significant KPIs are affected when ad revenue is moved to digital. Meanwhile, some European countries are used to the fact that their viewers are already enjoying an ad-free TV viewing experience. Therefore subscription streaming services are less appealing in those countries. With video platforms like YouTube, viewers seldom feel an ad load of over 10% as they can skip ads or avoid them in different ways.

Will streaming TV transform the way TV advertisers work?

With new video streaming services popping up, the world of television, and how content is consumed is changing rapidly. These days, the TV consumption of the audience is free of advertisements. While that is a piece of good news for TV viewers, it is not possibly good news for traditional TV advertisers. 

With broadcast TV giving way to on-demand TV, the TV advertisement market with $80 billion in the US will have to adapt to cope up with the change. With the popularity of video streaming services, the advertisement based business model that successfully dominated TV for decades is ready for a major transformation. 

Audiences are increasingly choosing to cut the cord to opt for video-on-demand services that come at surprisingly affordable prices than what is charged by cable service providers. 

Once set free from the interruption of advertisements that interrupts the smooth viewing experience, viewers are reluctant to accept advertisements in other places too. 

The growing popularity of ad blockers itself is an example of this trend. However, TV advertising, even with all these threats, remains highly effective and profitable. This is mainly because broadcast TV still has reached to a growing number of users. 

Consensual advertising business model

With consumers switching to streaming TV, the old business model of TV advertisers has become obsolete and therefore are trying to find news of reaching consumers digitally. Search engines like Google and other platforms like Facebook are already tracking us when we browse the web and deliver personalized advertising based on search history. 

However, very few of these ads provide the scope for customized connections that TV advertisements had. TV advertisers will struggle to find a desirable alternative to the way of presentation. 

The business model of the TV advertisement industry must undergo a new change, But how? A model of consensual advertising where the customers offer an explicit approach of received ad messages is the right one. 

This is similar to the opt-in advertisement as viewers generally cannot opt-out advertisements and have to rely on other solutions like ad-blockers. However, the consensual advertisement might make ads not just more effective, but cheaper as well. 

The outcome will be to please ad producers who need the message to reach the audience and for the audience who seek information about products through advertisements without getting inundated with too many interrupting ad messages. Similar to the HubSpot inbound marketing pitch.

The broadcast advertisement is a bit crude as it reaches both the interested audiences and uninterested audiences. It hits almost everyone who watches the broadcast TV regardless of buying preference, interest, or consent. 

In the past, advertisers only wanted to reach the target audience. That is why they pick the right slots for their advertisements during prime time. However, with the shrinking audience worldwide, TV advertisers have to focus on targeting the right audience. 

Talking about right targeting, it starts with understanding more about your target audience. Great lesson TV advertisers can learn from Facebook and Google. They know well about their users in all aspects. 

They understand the preferences of users, their behaviors, and a lot more. Google can leverage the search history of users to advise advertisers what products users are looking for in particular. A video-on-demand platform like YouTube is already relying much on in-stream advertising. 

Before anyone can watch the main video, they probably have to watch an advertisement for at least a few seconds. So a smart way to keep TV ads and TV advertiser’s game on point would be to follow consensual advertising.

With broadcast TV, the financial benefit to advertisers might not be straightforward. It works this way. TV advertisers pay the network, and they, in turn, deliver TV programming to the audience for free. 

With video streaming, the streaming service has control over deciding how and where to insert ads in their videos and then deliver their services at a lower price to users. However, with plenty of video streaming platforms, there would be at least a few of them that offer ad-free streaming, which makes the market segmented. 

This results in TV advertisers not being able to reach all of their target audience efficiently

To alleviate this, VOD platforms like Netflix can offer a deal to the audience, like giving some credits on the user’s monthly bill for each ad watched that is paid for by the TV advertisers. 

In this way, advertisers can bid for user’s time, and for high attention, they have to bid a higher price, whereas advertisers target a niche audience that can have a lower price tag. This works as people still prefer watching best quality commercials that are entertaining and informative, and of course, there is an undeniable offer clubbed along with this. 

Video-on-demand services can impose search filters for ads by aspects like niche, bid, most viewed, or others

video on demand

In an era of technological advancements, technology will play a significant role in bringing in adjustments for TV advertisers in the industry. This will induce a substantial change in the attitude of TV advertisers that treats user’s attention as free and disposable. 

Technology will also guide an era of consensual advertisement where the viewer’s attention is no longer free. The business model is pretty simple. To influence the buying decision of users, TV advertisers have to pay them directly for their time rather than indirectly reaching out through some free services.

How to secure the relevance of TV advertising in the streaming industry?

As we have already discussed, users these days have access to subscription-based video-on-demand content for a lower price. With an increasing number of customers choosing subscription-based streaming services, they are signing up for ad-free viewing experience. In such a scenario, what TV advertisers can do to secure their position in the industry?

With such a significant change, it is crucial for TV advertisers to stay right on top of the changing environment and understand the different types of streaming services and benefits it offers to them. While the subscription business model is not a positive plot for advertisers, there are other options as well. 

Hybrid business models that combine both ad-based and subscription model offers a great alternate option for the audience who can choose between ad-based and ad-free version. The main benefit for TV advertisers here is that the audience prefers watching ads like the number of ads is less. Unlike traditional TV, viewers aren’t going to switch channels, and therefore the attention is more.

TV advertisers will adapt and innovate

As always, the only way for TV advertisers to hold on to the rapidly changing times is to adapt to these changes and innovate. With their trusted brand identity and high-quality content, they can pave the path to success if they are prepared to adapt and take advantage of what viewing like about commercial TV. 

So what your viewers like about TV ads? No cost and reliable entertainment that appeals to the whole family, and that is informative and creative at the same time. Customers try to avoid ads that are intrusive, boring, and takes up over 30% of the prime time shows. 

One way to tackle these issues is to make advertisements more relevant and less intrusive. If you are using a video on demand software to create your VOD platform, you can customize where and when to place the advertisements in your videos. 

The impact of video on demand on TV advertising will be gradual

The hit programming on the new streaming platforms is indeed causing viewers to hit off from traditional TV massively, but the pace is not that fast. More likely, if the new players move in the same path as that of Netflix, we will likely see a massive viewing shift from traditional TV. 

On the other hand, other factors increase customer inclination towards the traditional TV. One of them is that some of the top tier sports like the NBA and NFL choose to remain on traditional TV, forcing most customers to stick on to their existing services in some of the other forms. 

When the same customer access to traditional service is maintained in the same way, there exist substantial opportunities for TV networks to create and distribute programs that are in demand. This implies that new services will be complementary to the industry, and the change will continue to be incremental. Additionally, TV advertisers will also have gained as customers start embracing new streaming services. 

Considering the on-demand nature of new video streaming services and the quality offered by these services, viewers will be highly engaged when watching ads through this medium than watching in traditional TVs. The advertising space will also be less cluttered and have more opportunities for advertisers to breakthrough. Targeting opportunities will also be superior compared to traditional TV and be universally available.

Wrap up on TV advertising

As with any new industry, video on demand and streaming also has many players who offer different services trying to compete for the same space. In between this scene, there are TV advertisers who struggle to secure their spots in OTT advertising as well. 

Despite the challenges that the streaming industry brings in, it also offers great benefits to advertisers like the high engagement from users. TV advertisers who can keep up the standards of the fast-growing streaming industry will navigate through all the challenges and ultimately reap great benefits. 

What are your thoughts about the impact of video on demand and streaming on TV advertising? Please do share it with us in the comment section below. 

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General FAQ’s

What is connected tv advertising?

What is connected to TV advertising? Connected TV (CTV) refers to any TV that can be connected to the internet and access content beyond what is available via the normal offering from a cable provider. CTV includes ads bought programmatically and shown on computer/mobile streaming, or over-the-top (OTT) devices.

How does TV advertising work?

TV commercials are purchased as spot packages. Ads normally run as 30 or 60-second spots. Your company presents its budget to the advertising sales rep, who then prepares a placement schedule proposal. Key factors in your schedule include the target audience, length of placements and preferred dayparts.

Why TV advertising?

Because TV works. It is still the most effective brand awareness channel. TV advertising creates, builds and grows brands. Several recent reports confirm that nothing is more effective than television, in both short and long term strategies, and warn marketers against shifting money away from traditional mediums.

How much does it cost to advertise on TV?

For local television stations, advertisers can expect to pay a minimum of $5 per 1,000 viewers for a 30-second commercial. Based on data provided by Adage, a 30-second spot broadcast nationally averages around $115,000 in 2019. The average cost placements for 30-second Super Bowl ads can go for upward of $5.25 million.

What is consensual advertising?

Consensual advertising is the practice of promoting and receiving advertising messages only with the expressed consent of both the company and us humans. This means you only get messages you say you want. This means companies don’t track and target you to serve you ads.

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