This article is part of CMO.com’s September series on the state of media and entertainment. Click here for more.
Broadband internet followed by the widespread adoption of the smartphone has revolutionized how people consume content. The ability to stream high-definition video both at home and on the go has widened the range of options and opened the door to new media companies providing those services.
Nowhere is this better exemplified than with Netflix, which has demonstrated, perhaps more than any other media company, that content is king. In 2017, the number of Netflix subscribers topped cable subscriptions for the first time, signaling that customers are increasingly demanding personalization, convenience, and ease of use.
“Consumer habits are continuing to evolve toward consuming whatever content they want, whenever they want, wherever they are,” said Arlen Marmel, general manager of the VRV multichannel platform at Ellation, which provides sustainable business models for content creators. “This is a natural progression, and Netflix and services like it are simply catering to consumer demand. They also have programming that is as good, if not better, than what’s available through linear television.”
Neil O’Keefe, SVP of content and marketing at the Data & Marketing Association, said the growth of Netflix and other over-the-top (OTT) streaming services shows the desire for content on-demand, whether on a TV, mobile device, computer, or another device.
“Media companies are experimenting to determine how their current audience or potential new targets would like to consume content—a victory for customers who receive the convenience of a platform tailored to their needs,” he told CMO.com. “For example, a person who frequently travels might prefer services like Netflix or Amazon, which allow them to download content to watch later offline. People on a budget might happily watch a few ads on Hulu or CBS All Access in exchange for monthly savings.”
But the TV audience—people who are actually watching video on TV screens—isn’t suddenly going to disappear, said Ari Applbaum, vice president of marketing at AnyClip, which works with advertisers to monetize relevant ads and target viewers.
“Roku, AppleTV, and Amazon Fire TV Sticks are bringing online video to those folks and in greater quality than has previously been available for web video,” he told CMO.com. “However, those companies, along with Facebook, are pushing new boundaries in terms of how content is delivered. For content makers, this might take the shape of shooting video both horizontally and vertically [to be more easily viewed on mobile phones] and in regular and 360-degree video to accommodate VR. There will be more screens and more options for consumers, but the TV will still have a major audience.”
By some estimates, Netflix saves consumers nearly 158 hours of their lives per year in commercials. What’s more, consumers now expect a commercial-free experience, and this expectation isn’t going away.
“Since advertisements are critical to the role of funding programming, they can’t completely disappear,” said Gary Miles, CMO of Amdocs, a software and services provider for media companies. “We just won’t see the same quality of content. We will move to a more efficient and effective mode of better targeted ads at much lower frequency.”
According to Eric Schmitt, vice president of audience solutions for global data marketing company Acxiom, Netflix is demonstrating that a large-scale, advertising-free business model for premium video is viable, if not nearly as profitable, as the traditional programming-plus-ads channel bundle model.
“Of course, this isn’t a new phenomenon—premium subscription channels like HBO have been around nearly since the dawn of cable. But Netflix, along with Amazon, are proving that the consumer appetite for ad-free a la carte is much higher than in the past,” he told CMO.com. “As long as consumers continue to watch at least some traditional TV, this likely makes the associated ad inventory more valuable, as more advertising dollars chase fewer available inventory opportunities.”
Since many of these content platforms don’t have traditional advertising (a.k.a. commercials), brands need to be creative regarding potential opportunities for product placement or integration into storylines.
“When done with a wink and a nod, creatives can find magic in product placement,” O’Keefe said. “Think of Subway’s placement in NBC’s ‘Community,’ where the show’s writers had freedom to poke fun at the concept. That’s much more appealing to a viewer than a beloved character reading off carefully scripted ad copy.”
Potential opportunities for branded content also exist on streaming platforms. For example, “The Earliest Show,” a series on Funny Or Die created in partnership with cereal brand Cap’n Crunch, let loose improvisers Ben Schwartz and Lauren Lapkus, who poke fun at morning show conventions.
By necessity, marketing on TV is becoming far more data-driven.
“Advertisers are spending more time and money to zero-in on the specific audience targets they want to reach,” Schmitt said. “Direct and digital marketing practices like test-and-control and the attribution of website visits, purchases, etc., to TV ads are becoming mainstream.”
On the surface, it may look like fewer commercials means less overall revenue for broadcast and service providers; however, more targeted ads will increase interaction and potential purchases, experts said.
Also important to keep in mind: It’s critical to tailor the message and the content to the platform and targeted audience.
“A key to getting your message across to consumers of all generations is omnichannel engagement—in other words, reaching the target audience with a consistent message across media,” Schmitt said. “For Millennials, a successful media mix is generally anchored by digital and mobile platforms. For older generations, traditional television and direct mail warrant proportionately more spend.”
The “trick” is to make the experience, whether it is viewing, discovery, advertising, or in entertainment shopping, very simple for users of all ages, Amdocs’ Miles added. “The segmentation systems and machine-learning targeting systems will handle direct advertising to the right user—whether a Millennial or other. I am confident of this.”
TV In the Next Decade
No ifs, ands, or buts, it has become clear that the next-generation viewing audience is mobile-first, said Kent Steffen, global OTT president for CSG International, which provides revenue management solutions to the telecommunications industry.
“TV is no longer just the appliance in your living room—it is whatever screen you have in front of you. This has an impact on licensing rights, device and app coverage, and broadband utilization,” he said. “This is also shifting the overall viewing experience from family-shared to a personal viewing experience. So-called ‘cord-cutting’ has never been higher and will likely continue as more options emerge that offer great consumer choice, control, and convenience.”
With this huge shift for service providers and increased alternatives for the consumer, it’s expected that market fragmentation will continue and TV audiences will get more control and personalization.
Many in the industry believe that as data speed and device power increase, so will the adoption of immersive technology.
“Netflix is currently the most-used VR app, although for now it only places the user inside of a digital living room to watch a large virtual TV,” Direct Marketing Association’s O’Keefe said. “While Google Glass fizzled out, there may be a breakthrough that leads to similar wearable technology adoption. And, while this may be more than 10 years off, driverless cars will lead to hours of additional free time for auto commuters.”
Miles noted that the Netflix model is clearly very attractive, and that the space will become an increasingly busy market where content will be mixed with connectivity, but he sees the industry moving in a more fluid environment where labels like OTT, broadcast, and pay TV disappear.
In fact, research company Kagan predicts that U.S. pay-TV providers will lose 10.8 million subscribers between now and 2021, and 18% of households will rely on OTT only for TV by then.
“We’ll begin to focus more on omnichannel personalized entertainment experiences with optional bundling to and from communication services,” Miles predicted. “Cable providers will continue to develop new revenue streams with proprietary and local content through either partnerships or acquisitions and will change their advertising strategy to complement this approach.”
Regardless of evolutions in technology and platforms, brands will still want to provide their customers with a relevant experience in the right places and times, O’Keefe said. This means developing an integrated data approach in order to see a full view of customers and their experiences with the brand. With this integrated view, a company can deliver sequenced campaigns through programmatic placements and avoid oversaturation.
“Brand safety will remain an issue as traditional TV and online video merge into one simple bucket of content,” AnyClip’s Applbaum said. “Content providers and ad networks will need to be able to prove they’re capable of protecting their advertisers from having their ads placed next to content that is irrelevant, doesn’t match the brand sentiment, or is simply offensive to their target audience.”