Will Digital Video Steal TV’s Lunch?

09 September 2014 | Blog

TV's lunchOnline video is huge, and getting bigger. The advent of programmatic buying has only made digital video advertising easier than ever to buy and manage, adding fuel to the fire. The growth in programmatic sales has been impressive—estimates of the amount of pre-roll video available for programmatic buying show increases around 14% from Q1 to Q2 this year alone. TubeMogul, for example, has seen 140% more advertisers using their private marketplace and claim growth of 1,500% since Q4 2013. In addition, they report 1000% growth in inventory for programmatic mobile video sales.

So there’s no doubt that programmatic video is growing fast. The question is, with all this activity and with the rise of digital advertising in general, are we facing that long-predicted death of TV? After all, the upfronts were surprisingly disappointing. Some analysts have been speculating that this represents a turning point in which TV budgets start really leaking into digital.

The TV execs have moved recently to counter this notion. At the Nomura Digital Media Conference last week, several network heads pointed out that “advertisers aren’t seeing as much benefit from going [to digital] than in the broader reach of television” (Discovery Communications CFO Andrew Warren). Warren predicted a shift to the scatter market; AMC and CBS agreed that they weren’t particularly worried about the year.

Of course, there’s a certain bias there. But what about a more neutral party? Brian Weiser agreed that the upfronts missed projections, but suggests that this might just be that last year was an anomaly and that financial planners simply overestimated how the overall economy growth might impact advertising revenue. He thinks the fluctuations are within normal parameters and suggests that the difference might indeed be made up in the scatter market. As for the question of whether online video will steal significant revenue from TV, he notes

Online video is growing rapidly, but it generally lacks the necessary volume of advertising inventory or sufficient unique reach for national advertisers to make up for a shortfall on the scale of what we saw in the most recent Upfront negotiations.

Last year, national advertisers spent $42 billion on TV and $3 billion on online video. He estimates that if 5% of national TV spending went to online video to achieve TV-related media goals, it would require more than doubling their online video spend. He goes on to note the potential waste, given that online video consumption is about 5% that of TV consumption.

But consider further that 17% of the population accounted for 96% of online video consumption during the most recent period from which we have Nielsen data on these metrics (1Q14), and this group of people accounted for 16% of conventional TV consumption.

Without anything approaching TV’s reach at the moment, online video simply can’t absorb very much of TV’s budget. There aren’t enough relevant impressions worth buying, even if programmatic markets are expanding wildly. It looks like TV is going to be around for a while yet.