Addressable CPMs can be 10 to 20 times higher than a seller’s effective CPM across the rest of their linear portfolio, naturally leading sellers to want to sell as many addressable impressions as they can. But sellers need to be strategic in their approach to this channel because blindly offering as much of it as possible can negatively impact the value of remaining core inventory.
Providing addressable linear advertising is neither easy nor cheap for sellers. When you factor in headcount to manage extra volume, complexity of sales and execution, expense of data sourcing and data management, and legal compliance surrounding data privacy and security, the costs can wipe out the profit potential of selling inventory at high prices—particularly when inventory remains limited.
Here are three areas sellers should focus on to ensure that their addressable linear ad business is profitable in the context of their portfolio as a whole:
1. Maintain a focus on portfolio-level yield.
Sellers need visibility into how addressable-eligible inventory would perform if packaged and sold under different scenarios to understand opportunity costs and avoid revenue cannibalization. They also need to enable fluid and near-real-time inventory allocation decisioning, which will require both technological and structural changes to the way ad sales and operations teams work.
These new analytical processes require new tools and skills. Sellers didn’t historically need to consider these types of scenario plans because cannibalization wasn’t a problem that traditional linear TV faced.
2. Understand the true cost of data.
To gauge whether your investment in addressable can be profitable, understanding the true cost of the data required to run your addressable linear business is key. Although often overlooked, the incremental cost of using data to package inventory can be significant, especially when sellers build custom segments using third-party data sets. Even as a distributor with your own first-party data, you still need a third party to facilitate blind-matching against advertiser data sets, and that costs something.
Meanwhile, consumer privacy and data governance regulations are only going to become more stringent and will carry increased costs of compliance. Companies will be required to obtain or develop subject matter expertise internally and develop and implement a thoughtful data governance strategy. These all involve incremental costs to minimize risk and exposure. Companies that choose to leverage exemplary data practices as a point of differentiation and competitive advantage will surely pay a premium. These costs may well be worthwhile based on the profit you stand to make, but many sellers aren’t yet carefully accounting for them.
3. Build teams that can straddle digital and traditional TV mindsets.
Addressable isn’t an entirely new product like digital was. It’s a transformation of the reliable linear TV format, combining aspects of digital and TV businesses. Its hybrid nature defies easy labeling and is bound to produce conflicts within your culture. Given your salespeople will still be doing business with buying organizations that are siloed between TV and digital, this is especially true.
Sellers need to build what I’ll call “whole-brained” teams that can speak fluently to advertisers and buyers about traditional TV tenets like reach and frequency as well as performance-driven metrics and ROI. Digital purists who think traditional TV is on life support—and make no secret of it—may greatly hinder your chances of success with addressable TV.
Ensuring that your teams are incentivized to work toward the total revenue goals that have been set at the organizational level is also key. If a team’s core compensation and bonus are predominantly tied to how much audience-based inventory they sell, they’re probably going to be laser-focused on that at the expense of all else. (Many will even think that growing their company’s audience-based business at the expense of traditional linear is a good thing.)
When a larger share of comp packages is tied to portfolio value, salespeople will become less territorial. And they’ll be more likely to work collaboratively and make decisions that result in inventory being sold for its correct value.
To learn more about how sellers can ensure that addressable linear TV advertising is a profit center for their business, download our addressable playbook here.