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How a Complicated Supply Chain Leads to an Ad Tax and Other Trends in TV’s Transaction Layer

Posted by Ashley J. Swartz on Jan 21, 2020 1:00:00 PM

How a Complicated Supply Chain Leads to an Ad Tax and Other Trends in TV's Transaction Layer

It might surprise you to hear that most linear TV sellers are still driving 80% to 90% of their topline revenue from traditional, Nielsen-measured TV. While the future of TV is surely audience-driven, data-heavy and technology-enabled, it’s coming at us in slow motion. Rome is falling but only one brick at a time.

Here’s the big picture of what the transaction layer looks like today and how it’s evolving:

Now armed with audience and behavioral insights from delivering content on digitally-enabled platforms, sellers are refining their products and packages to offer up more audiences in more places. Meanwhile, spending on TV isn’t going down, and the cost of buying TV is actually going up. Much of this incremental spend is going to intermediaries that are enabling TV to be bought and sold as audiences, not impressions or eyeballs. Buyers want yogurt-eating moms in the Midwest with a household income of at least $100,000, not women between the ages of 18 and 54.

So, what’s the ad tax?

This increase in the cost per transaction as a result of incremental fees to intermediaries (who are either adding additional data or reselling) is effectively an ad tax. There are more people in the middle and more hands in the pot now, and it poses a huge risk. The more intermediaries there are, the greater the cost, which means less money for buyers and sellers.

We examine the status quo of the transaction layer and what’s changing in the realms of measurement and data in our “Decoding the Micro TV Landscape” video, which you can view here in its entirety.

Historically, the media industry did a great job of defining its own success measures, enshrining metrics like GRPs, impressions and reach. However, as digital metrics have pervaded the TV advertising business, pressure from buyers for consolidated measurement across TV and video channels has steadily increased.

How It’s Changing

Over time, I expect to see a more wholehearted embrace of the transparent, easy-to-understand CPM, phasing out the GRP, CPV, CPP and a host of other metrics. Some may see this as a bold prediction, but it simply doesn’t make sense to sell using other currencies and then back into a CPM for reporting purposes, which is commonplace today. Something has to give, and what the industry ultimately needs is convergence around a single form of measurement.

Addressable TV, Ad Spend, and Linear Insertion

Meanwhile, addressable TV is now available in 64 million homes in the U.S., and addressable ad spend is projected to reach $3.37 billion in 2020, per eMarketer. That’s not insignificant. But the scale of linear insertion, which can enable advertisers to combine their customer data with third-party data and blind-match it with content distributors’ PII subscription data to reach relevant households, is still very limited.

Buyers often possess a wealth of first-party data that they want to use when they buy media to ensure they’re reaching the right people. Linear insertion makes this possible, but the irony is that the TV audience products with the most reach are often index-based, which means buyers can’t use their first-party data to narrow down the audience. So, while innovation is happening, it can sometimes feel like it’s taking effect in slow motion.

To learn more about the micro trends that are slowly but surely transforming TV’s transaction layer, watch “Decoding the Micro TV Landscape” here.

Decoding the Micro TV Landscape