Smartclip CEO on Emerging Markets and Outsider Perceptions of the Industry

Smartclip CEO Jean-Pierre FumagalliIn the second part of a two-part interview, Jean-Pierre Fumagalli, CEO and founder of Smartclip talks about how non-TV video advertising is perceived by advertisers and by traditional broadcasters, and about where he expects to see growth in video advertising geographically and technologically. The first part was published yesterday and can be found here.

How you you think non-TV video advertising is currently perceived by advertisers?

All of our main advertisers are also classic TV advertisers. The kind of revenue we’re generating can be won from non-digital budgets. Our average campaign size is a six-digit number, and you don’t generally get that kind of revenue from pure digital budgets.

Digital video is still a new area that people are testing out, and if you’re someone who spends €40 million on television, it’s no problem to have a test budget of €1 million or €3 million. For that reason, video advertising is being primarily driven by the big brands. Obviously there are also a lot of smaller advertisers who couldn’t afford television and who want to use video as a mean to visually connect with their audiences, but generally speaking it’s the larger advertisers who are spending most.

Digital video is currently seen as an add-on to television, which is clear when you look at the time spend per device and content. In terms of usage and time spend TV is still the lead medium. But everybody is very excited and knows about the impact that the new technologies will have to this medium in the future.

How have the traditional German TV broadcasters responded to the rise of connected TV and online video? Do they see the new technologies as a threat or as an opportunity?

In the beginning they didn’t pay online video any attention at all, so they left it out of the equation and completely ignored it. When they realised it was a fast growing market, turning quickly to a relevant size with Smartclip generating between 10 and 40 per cent of all the in-stream video revenue, they became very interested.

The German online video market is worth around €100 million net, and about €85 million of that is almost equally divided be-tween Smartclip, RTL and Pro7, the two dominating German TV broadcasters. So in terms of video revenues we are complementing the offering of the leading TV players, working closely with the smaller TV broadcasters e.g. MTV or Discovery Channel and supporting content owners and digital publisher in getting their fair market share.

But the large TV broadcasters already approach the changing competitive landscape in three dimensions. For instance they developed a new technology standard that tries to give back control to them in terms of content and access to the TV screen. HbbTV , a project mainly driven by the German and French broadcasters, provides a standard to deliver feature rich broadcast and internet services to TVs. Obviously, this standard was designed to protect their own broadcast TV business model, limiting simultaneous access to the internet outside the broadcasters control.

Secondly, they’re also working on the legal side to implement restrictions on advertising. The leading TV sales houses are aware of the upcoming competition in the digital video land-scape with its big players like YouTube, Apple etc. Anyway they’ve no incentive to embrace it early on, even though they could drive the market fairly quickly, because it would lead to them losing some market share.

Another way they are resisting is through the type of content they’re producing. For example, if you compare television programmes today with those shown 10 years ago, you’ll notice that everything now is live and in real-time to provide an incentive for people to watch live, which reduces the need for time-shifted viewing. If there’s a talent show and the final is over, there’s not much incentive to watch the final afterwards.

We’re also seeing a reduction in the number of TV companies who are simply buying content from US companies and then just playing the content out, because they know this area will be dominated in future by on-demand services that will prob-ably go out over IP, so they have started to create original content that they have the rights to, and the type of content that the viewer has a reason to watch at the time it’s being aired. This is the strategy we’re seeing across all the markets and I think it makes to of sense as a strategy.

Which of the new technologies do you think will deliver the strongest growth areas for video advertising?

The biggest growth areas with additional emphasis on content will lie outside of traditional TV broadcasting. Look at connected TV and compare that with what has happened on smartphones.

Five years ago app stores didn’t even exist, but now you have over 500 million apps available. At one point people couldn’t envision a mobile phone doing anything other than making phone calls. We’re at a similar stage now where people can’t envision themselves doing anything else with their TV set other than watching television shows.

I think the biggest growth opportunity is anything that is not related to traditional TV shows. We’re seeing a huge spike at the moment in gaming apps and there’s a debate going on now about whether people will actually need a games console in future, or whether it will be delivered over the cloud via an input mechanism, where your TV is just the output mechanism.

Also if you look at the use of video conferencing via services like Skype and the uptake of services like Facebook, , you soon realise that advertising on a TV is not only to look like the traditional TV model. Most of these contents are accessed and promoted through the content portals from Samsung, LG and Philips, producing huge traffic and additional advertising potential.

Once people are using these services on a TV screen, you can serve TV ads against all of them and I think we’ll see the emergence of new ad formats although they’ll be far more creative than standard TV 30 second spots.

Traditional TV will stay around of course, but the major growth areas will be based around the new connected TV functionality.

And in geographical terms, in which emerging markets do you think we’re going to see the most growth?

While a lot of the new emerging markets are enjoying economic growth and have huge populations, connected TV is a problem because the bandwidth simply isn’t there. If you think about India, all the Internet usage is going through mobile phones.

So if you’re looking at shifting huge volumes of video, connected TV apps and content, the Western world is likely to dominate short term. But in time markets like China will of course be huge.

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