Programmatic TV 101: The multi-billion-dollar ad tech that's transforming television

It’s hard to conceive a more exciting advertising opportunity than programmatic television. On one hand, brands are able to command consumers’ full attention with 30 seconds of full-screen sight, sound and motion on the big screen. On the other, they can implement the same data tools they use online to pinpoint the right audiences for their advertising message. With the potential to limit DVR skip-through rates by providing viewers with the most relevant possible advertising, programmatic TV represents the best of the digital and television advertising worlds.

So it should come as no surprise that programmatic TV is expected to be a $17 billion opportunity by 2019.

Given this incredible potential, it’s easy to be frustrated that the programmatic TV market hasn’t developed faster. After all, data-driven advertising is responsible for more than half of all online display spending, but only around 4 percent of television spend. But while a number of roadblocks still stand in the way of television’s programmatic future, the past few years have seen television networks, media buyers and advertising technology companies take several big steps toward bringing increased precision and automation to the market. Just as programmatic became a buying staple in digital media, so too will it likely become widespread in television, albeit with a different set of rules and objectives.

What is programmatic TV?

In considering the prospects of programmatic TV, it’s important to define exactly what it is we’re talking about. In short, programmatic TV represents any TV ad buy that uses data and automation to more precisely target specific consumer audiences, with the end goal of driving better return on media spend.

Programmatic TV represents any TV ad buy that uses data and automation to more precisely target specific consumer audiences, with the end goal of driving better return on media spend.

This definition is in contrast to programmatic advertising on devices like computers and smartphones, where every ad is targeted to an individual user. In television, only a relatively small amount of inventory is what we call “addressable,” meaning that an advertiser can target its message to an individual household. Right now, there are about 42 million addressable households in the U.S. Advertisers can send individual messages to these households by purchasing inventory from cable and satellite companies that can link their set-top boxes to the customers who own them. Unfortunately, these service providers only have access to two minutes of advertising every hour, meaning they are often unable to give buyers the scale they need to carry out large, national campaigns.

On the bright side, advertisers can still greatly improve the effectiveness of their TV campaigns by more precisely targeting audiences with high-indexing programming as opposed to individual households. The way this works is advertisers are able to layer on their own first- or third-party data to find the television shows and networks that a given group of people are most likely to watch. This goes beyond the typical age and demo targeting of, say, men 18-34, and allows them to a purchase ads during shows with an above-average number of men 18-34 who are currently in the market for a new pickup truck. They can also target by geographic location, allowing them to purchase ads in ZIP codes that over-index for, say, female homeowners with a household income above $100,000.

Why programmatic has yet to fully take off

One reason programmatic TV hasn’t exploded is many broadcast and cable networks are hesitant to make their premium inventory available to programmatic buyers. There remains a fear that data-driven advertising will commoditize inventory and decrease prices on premium TV ads. Plus, television networks don’t have as much incentive to change their ways as online publishers because they are still having great success selling most of their inventory, in a scarce marketplace compared to demand, through guaranteed, up-front deals.

On the buy side, since programmatic addressable TV was the first programmatic option to roll out, the limited amount of addressable inventory made it difficult for large brand advertisers to achieve adequate scale. In addition, addressable TV is not cost efficient for every advertiser, especially those with broad targets and mass appeal products. However, the introduction of data-enabled, high-index programmatic TV options addresses both these issues.

Still, programmatic TV continues to grow

This year, as the television upfront season approaches, we are seeing major movement and advances in the programmatic TV market. Just this month, AT&T announced its “Video Inventory Platform,” a private marketplace that will allow buyers to target audiences across 26 million households using automated ad-buying software.

As television and digital video continue to converge, we move a little bit closer to video advertising’s holy grail: The ability to purchase premium inventory aimed at select audiences with a single media plan that covers television, mobile and desktop devices.

Meanwhile, NBC took a major step toward adding the quality and scale buyers crave when it said in February that its entire portfolio of linear inventory would be made available to select buyers programmatically. Fox Networks Group has also jumped on board, announcing a platform in March that lets marketers buy linear TV inventory programmatically with audience characteristics beyond age and gender.

Indeed, as media consumption habits continue to shift seamlessly between linear TV and digital video channels, broadcasters and TV operators are recognizing the need to offer similar capabilities to customers buying their content across both linear television and video channels.

In fact, there’s reason to believe that in the very near future, we will no longer even think of there being a difference between television and digital video. As these two mediums continue to converge, we move a little bit closer to video advertising’s holy grail: The ability to purchase premium inventory aimed at select audiences with a single media plan that covers television, mobile and desktop devices.

Scott Ferber has spent his career utilizing mathematics and data analysis to build profitable businesses and products. With the goal of bringing the accountability of digital media to the expanding video space, he founded Videology in 2007. Its video advertising solutions platform is now used by some of the world’s largest marketers and media agencies to connect brands with their targeted consumers. Reach him @VideologyGroup.