From Fragmentation to Data: an Overview of Connected TV Advertising Today

Connected TVThe race for connected TV is a little like Wacky Races, where each competitor brings something a unique set of resources and skills to the table. For example, we’re forced to consider whether a search and ad tech giant – with little or no experience in TV – can win out against a pay TV provider who bundles broadband and phone services. Or can a TV manufacturer, with relatively little experience in building software, build a platform to rival one created by a pure-play OTT service?

Put simply, at the platform level, connected TV is a difficult space for anyone to predict, and it’s difficult to make calls on who the winners and losers will be (although ‘content is king’ is as good a rule of thumb on connected TV as it is anywhere else). 

But, in spite of the platform fragmentation, connected TV advertising has been able to take root between the ecosystem’s gaping cracks. But has TV’s newfound link to the Internet opened up a world of more interactive and data-driven possibilities? Here’s an overview of where we’re at today:

1. Fragmentation is still holding the industry back and shows no sign of abating.

As Smartclip CEO Jean-Pierre Fumgalli predicted on VAN earlier in the year, the fragmentation problem on connected TV is only getting worse. Rightly or wrongly, most blame the CE manufacturers of smart TVs – Samsung, Sony, Toshiba, LG, Panasonic, Sharp etc –  who are all hoping that ecosystem ownership will enable them to make TV manufacturing profitable again.

While it’s understandable that profit-hungry TV manufacturers want a piece of the action, their current strategy flies in the face of what we’ve seen on desktop and mobile, where open, developer-friendly platforms consistently win out.

However, perhaps it’s not that simple either. There’s a common belief in connected TV circles – and one that’s backed up to at least some degree by research on how consumers use TV today – that TV is different and that consumers will always want a simple, straightforward way to consume video content. In the short term, at least, they might be right.

But if developers are to revolutionise TV and create a new, heretofore unknown experience – TV’s long-awaited iPhone or Angry Birds moment – then it seems more likely to happen on a platform that makes life easy for developers.

The main problems caused by fragmentation are: (a) apps have to be redeveloped for each smart TV platform (imagine having to redevelop a website so it can be shown on Samsung PCs, Toshiba PCs etc.); (b) the SDKs from the various ad servers have to be integrated into each individual app, and switching from one ad server/ad network to another is no easy task.

For advertisers, the only way to get any kind of scale on connected TV is to buy from a network, or perhaps buy some TV VOD inventory (usually bundled with TV) from a broadcaster. Direct sales remain rare.

However, solutions are emerging. Developers such as Accedo, for example, have created tools to make switching ad servers/networks significantly easier, and some of the leading CE manufacturers are participating in the Smart TV Alliancewhich aims to create standards on advertising and app development environments. Samsung, the market leader for smart TVs, still haven’t joined and aren’t expected to any time soon.

2. Consumers are catching up, but there’s still work to do on awareness and connection rates.

The data on smart TV connection rates is usually disappointingly low, even if you ‘connected TV’ also encompasses OTT services and consoles, not to mention those who hook up their laptops to their TVs.

Connected TV Growth

The latest research, published by Analysis Mason, shows how smart TV connection rates lag behind ownership, although this gap will in all likelihood close over time as functionality improves, the app market grows, and consumer awareness rises. However, the decision by Pay TV providers to integrate VOD catch up services into the broadcast EPG will also be a limiting factor.

Connected TV Connection Rates

3. Connected TV inventory is available to buy programmatically, but data is still relatively scarce.

There are no technological limits to using cookies or buying connected TV advertising via exchanges – indeed, many of the leading companies are already offering inventory programmatically today. However, efficiency aside, the incentives for doing so are currently less compelling than with when targeting users on desktop and mobile.

Data is in relatively short supply as: (a) third party data providers have yet to catch up with connected TV; (b) content isn’t consumed via a browser, so there are less opportunities to drop cookies and to retarget users; (c) any data available is less granular as the TV is a shared device, so the best prospects for improved targeting will probably take the form of user ids, which might eventually be activated through facial or voice recognition.

However, it seems likely that – unless industry and regulatory safeguards are built in from the outset – the privacy debate on facial/voice recognition will make the cookie saga look like a stroll in the park.

4. Converting customers on connected TVs remains a tricky business.

The ‘t-commerce’ revolution is on the horizon but still feels a little far away. While it’s undoubtedly something we’re going to see happen in the future, it’s still too difficult to buy anything on a connected TV using a TV remote, so subscription models – take Netflix, for example – tend to dominate.

However, even when the process is made easier on connected TV, it seems more likely that people will want to complete the transaction on a second screen. As well as being a more convenient user experience, a more personal device would allow shoppers to keep payment information private and pay without disrupting the content for others in the room.

5. In spite of the slow start, pretty much everyone remains bullish on connected TV’s future.

It’s important to stress that the problems outlined are teething problems and that the consensus is for the most part that the future of the industry is IP-delivered, although how quickly that transition will – or indeed, can – happen is still up for debate.

Hybrid services that combine the best of broadcast and online services are only really starting to gain traction, and – in the absence of an online platform with a convincing content offering – appear likely to cling on to the vast majority of their subscribers for the next few years. However, subscribers don’t necessarily translate into advertising audiences, and pay TV will be seeing more competition as more premium content, data-driven advertising, and interactive ad formats arrive online.

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