TV Advertising: Interactive or Bust?

The US TV market is at the forefront of some key technologicalforces reshaping the TV advertising market. Globally, industryresearch indicates that at least 22 percent of TV advertisementsare being skipped in homes equipped with PVR/DVR technology. InUS homes with PVR/DVRs, the proportion of ads skipped is as highas 50 percent. This makes the US an ideal testing ground for theeffect that these disruptive technologies will eventually haveglobally, and for the strategies that companies should pursue toensure sustainable high performance .

The current industry consensus is that the cost per thousandviewers (CPM) rate in the US TV advertising market will rise byan average of 6 percent compounded annually through to 2010.Accenture's analysis suggests that this estimate is far toooptimisticWe believe a combination of three factors—continuedfragmentation of the viewing audience combined with additionalcompetition for viewer share from the top cable/satellitechannels; increasing available options for advertisers; andgreater demand for accountability for the results of TV adcampaigns from advertisers—will restrict the compound annualincrease to just 3 percent.

However, an important counter-view expressed at the 2005Accenture Global Convergence Forum was that the eventualsolution the industry develops will, by definition, engage andtarget viewers more effectively. This being the case, the effectwould actually push growth in average CPM significantly higher.The key issue is the difference between a straight-lineprojection of the industry and an inflexion point that changesits course more dramatically. Our contention is that all partiesneed to plan for both scenarios.

Analysis

Accenture analysis of third-party primary research underlinesthe potential impact of ad skipping on TV advertising. As Figure2Figure 2 shows, the 8 percent penetration of PVR/DVR homes in2004 results in just 2 percent of ads being skipped, hardlycommercially significant. But, using the conservative assumptionthat ad skipping will continue at the same rate in PVR/DVRhomes, the 40 percent penetration expected in 2009 will meanclose to 10 percent of ads being skipped. Advertisers may beable to live with 2 percent, but 10 percent is something else.

A further complication is that skipping relates closely totime-shifting and the propensity for viewers to time-shiftvaries by type of content. While they are highly likely totime-shift movies, drama or kids' programming, they are far lesslikely to do so with live sporting events or news, wherereal-time viewing is a key part of the experience.

Already, different players are applying various tactics to stopor neutralize the effect of skipping, ranging from changes inthe programming schedule to product placement to providing truelive video on demand (VoD).

But addressing ad skipping by restricting viewer behavior canonly be a short-term solution. Our analysis and industryexperience suggest that the only way to get people to watch adsin the long term will be to make them want to watch them. Thismeans blending compelling creativity from the content side withtighter targeting through new technologies, and being able tomonetize the resulting "eyeballs" by understanding whatinteractive ads do best: generating cost-effective sales leadsfor bigger-ticket, relatively complex and/or programming-relatedproducts.

Recommendations

The TV advertising value chain is at an inflection point—onethat is overturning long-standing economic assumptions andbreaking down the formerly clear-cut divisions between the rolesand skill-sets of the key players. We believe thatplatform/access providers and broadcasters facing thesechallenges need to keep three behavioral characteristics in viewto maximize their chances of success:

- Manage the business against parallel models andscenarios—Accenture's current view is that CPM could, in themedium term, continue in a relatively straight line. But the TVad market is entering uncharted waters. Given the dynamic,fast-changing and unpredictable period the industry is nowentering, companies cannot discount the emergence of far moredramatic scenarios. So it will be crucial to maintain agilityand flexibility and plan at least two scenarios for the business

- Adjust more readily and responsively to the emerging needs ofadvertisers—A key success factor will be the ability to move tomeet the real needs of advertisers. This goes far beyond simplyselling them airtime. It involves focusing more holistically onthe return on objectives that advertisers actually get for theirad dollars, and on what they are trying to achieve commercially.Ultimately, advertisers want to sell their product and newtechnologies mean they are inevitably reconsidering the role TVadvertising plays in this.

- Co-operate, co-operate, co-operate—No-one has a "silverbullet." To succeed, broadcasters, access providers andadvertisers all need to be ready to work together, share ideasand see things from each other's point of view. Thiscollaboration must crucially include the creation of agreedtechnical standards and of objective third-party measurementsystems at a granular level. No single industry grouping can doall this on its own.

In the post-PVR/DVR TV advertising industry now emerging, theonly certainty is that new models and techniques will emerge—andthe provider that can think from its own customer's point ofview will immediately be one step ahead. The TV advertisingindustry has always thrived on change and creativity. While thetechnology may have changed, those two touchstones will continueto determine the difference between success and failure.

For more information, please contact Accenture at 1 (312)737-8842