Real-Time Bidding not coming to TV Advertising at scale Anytime Soon.

Real-time bidding (RTB) has had a massive impact on the online display ad market. Billions of dollars worth of online ad impressions are bought and sold “programmatically” on exchanges through RTB systems on an annual basis today. RTB is certainly the fastest-growing sector in digital marketing  — and, given the extraordinary efficiency it brings to the buying and selling process, many expect it to swallow up more and more of the market over the next few years.

Many also expect RTB to invade and consume the television advertising market before long. Why not? Television is an electronic medium with electronic ads and electronic insertion, and many parts of the industry’s infrastructure — from set-top boxes to planning systems to distribution — are starting to become digital and Internet-Protocol driven. It’s a marketplace that many see as fraught with inefficiency and, given its massive scale — more than $70 billion is spent on TV ads in the U.S. annually — lots of money could potentially be saved or better spent.

Do I think RTB is going to come to TV at scale anytime soon? No way! Here’s why not:

Full-digital technology infrastructure many years away. TV advertising and TV content today is driven by and delivered by electronic systems, and sometimes digital systems, but most of them were built or designed in the 1980s and 1990s and have very little capacity to support the dynamic, real-time delivery of advertising in a robust and scaled way. Sure, companies like Visible World, Invidi, FreeWheel and BlackArrow are deploying modern ad insertion into cable, satellite and teleco operator environments, but it’s going to be many, many years until these systems are ready to be used for the bulk of national and local TV ad deliveries. This won’t happen until we have a significant amount of our TV delivered over Internet Protocol networks, a development five to seven years away at the earliest.

TV spots not tradable. TV media owners are in a good place. They control precious assets: sight, sound and motion content and ads delivered to passive consumers. These assets have self-evident value to advertisers and media buyers whose demand for the best assets is growing faster than the supply. TV media owner businesses are highly profitable today and still growing. Ironically, TV advertising grew 50% faster last year than online advertising, off a much bigger base. TV media owners maintain scarcity for the spots by tightly controlling who can buy them,  and what buyers can — and can’t — do with spots.

Today, owners sell almost no TV media in a “tradable” way. Agencies need to buy spots for specific clients — and, outside of direct response (where there is very little control over placement and timing), agencies can’t “trade” those spots to others, like what happens in the online world with the vast majority of placements. Are TV media owners likely to embrace “tradability” of their spots for RTB? Why would they? They have little incentive. Why risk billions for what is probably just millions in gained efficiency?

Online precedent scary. RTB and exchanges have decreased prices for many online media owners and have compressed the margins of many of the enablers and intermediaries. That scares folks in the TV ad ecosystem. I don’t think they’re too eager to risk the status quo, which is a pretty nice world for most of them.

However, the fact that RTB won’t happen in TV any time soon doesn’t mean that we won’t see some introduction of “programmatic” approaches in the market, where online-ad-like, data-driven digital systems help sellers, buyers and advertisers algorithmically improve their products and processes. Today, probably 99.9% of TV ad spending is based on content and analog (small data) optimization systems. By 2015, I bet that 15%-20% of TV will be sold, bought, optimized, measured, accounted or integrated on a data-denominated basis other than sex/age ratings, but that’s another column.

By Dave Morgan
Dave Morgan is the CEO of Simulmedia. Previously, he founded and ran both TACODA and Real Media.
Courtesy of MediaPost