Online video outlets are beginning to erode television's
hold on advertisers.
Major advertisers including MasterCard, Mondelez
International and Verizon Wireless have over the past year moved a portion of
the money they previously spent on television ads to online outlets, responding
to viewers’ increased watching of video online. Furthermore, with online
outlets recently unveiling plans to ramp up programming, more shifts appear likely.
Money for online video is "definitely coming out of
TV," according to Ben Jankowski, head of global media for MasterCard Inc.
That company shifted a small portion of its TV budget to online last year and
will increase that shift this year.
Starcom MediaVest, an ad-buying firm, shifted more than $500
million out of TV over the past 12 months, of which around three quarters went
to online outlets. The agency, which is owned by Publicis Groupe SA, said
it is planning a bigger shift during the recent "upfront" ad sales
negotiations with TV networks.
Companies have been putting money into online video ads for
years, but until now few had considered moving TV ad dollars there. Instead, it
typically came out of their print and display ad budgets. But with video
content and audience measurement both improving, marketers have become more
comfortable with moving TV dollars.
"For us, it's really about shifting to where audiences
are" said Laura Desmond, chief executive of Starcom MediaVest, which buys around
$40 billion in ad time and space annually on behalf of clients including Procter
& Gamble and Honda. "More and more people are spending time with
other channels beyond the broadcast and cable networks," she added.
Nearly 88 million people watched online video daily in
March, according to comScore, an increase of 14% over a year earlier. While viewers
continue to spend more time watching traditional TV continues, according to
Nielsen, many major cable and broadcast networks have seen sharp ratings
declines in the past few years.
Up for grabs is the giant pot of money spent by advertisers.
Television drew in $66.35 billion in 2013, according to eMarketer, which
represents 38.8% of total U.S. ad spending.
Digital media accounted for about 25% of total ad dollars. According
to eMarketer’s predictions though, television will remain bigger than digital only
until 2018, by which time TV's share of total ad spending will drop to 36.1% while
digital – including not only online video but all website and mobile ads – will
climb to 36.4%.
Online outlets, however, such as Google’s YouTube, Yahoo, AOL and
Microsoft's Xbox, are pushing to speed up that trend and lure away more of
television's ad dollars faster by holding their own "upfront"
programming presentations for advertisers, called the NewFronts.
How much these outlets can draw from TV budgets in the near
future will be determined partly by the spring's upfront ad sales negotiations,
which began after 21st Century Fox's Fox network and Comcast’s NBC
network launched a week of star-studded presentations of coming new programs.
NBC plans to use the hits "The Voice" and
"The Blacklist" as building blocks for its prime-time lineup,
which will feature edgy new dramas, such as the comic-book themed
"Constantine," as well as a handful of female-oriented comedies like
"Unbreakable Kimmy Schmidt," created by Tina Fey.
Ad buyers and Wall Street are expecting the upfront market
to be lackluster though. J.P. Morgan said in a note to investors last month
that spending commitments for broadcast networks could decline between 2% and
3% while advertising commitments to cable networks could increase roughly 5%.
Wall Street analysts predict that online video will not take
a big chunk out of TV commitments this year, but that it could have an impact.
At the very least, the threat of online video could be by advertisers as
leverage in negotiations so as to hold down the price increase the networks get.
Marketers say major TV networks continue to hold strong
appeal because of their ability to draw mass audiences. For instance, the U.S.’s
penultimate annual television event, the Super Bowl, can draw up to 100 million
Still, ad executives are aware that television cannot meet
all of their needs. In particular, younger consumers are gravitating to online.
According to Nielsen, 30% of online video users are age 18 to 34 while only 21%
of TV viewers fall within that range.
"Younger consumers are consuming less TV as a portion
of their total media consumption," said Laura Henderson, associate
director of communications planning and media at Mondelez, maker of Oreo
cookies and Trident gum. The company plans to shift 10% of its global TV ad
spending into online video by the end of 2014, adding to a trend that amounted
to a double-digit percentage shift in the U.S. last year.
Mondelez is also pushing into online video to find
"lighter TV viewers," according to Henderson.
MasterCard's Jankowski says declining broadcast-TV ratings
over the past few years were a factor in the credit-card firm's shifting a low-
to mid-single digit percentage of its overall TV budget in the U.S. to online
video channels such as YouTube and Microsoft last year. He said MasterCard – which
spent $81.8 million on TV ads in 2013, according to Kantar Media, an ad-tracking
firm owned by WPP PLC – is
likely to boost that by a few more percentage points this year.
Meanwhile, Verizon Wireless, a unit of Verizon
Communications Inc., shifted more than 10% of its TV dollars to online
video last year with the majority of the dollars going to online ad portals and
online video ad exchanges.
One major factor adding to such shifts though is that online
allows advertisers to target viewers more precisely.
Also, while measurement is far from perfect, and mobile
video consumption is still hard to figure out, analysts and marketers say that advertisers
are feeling more comfortable with moving TV dollars as Nielsen and others have
begun to offer better measurement of how their TV ads compare with the
performance of online video digital ads. This follows out of Google’s reversal
of course late last year when it allowed Nielsen to place measurement tags on
ads running on YouTube. That agreement "allowed the creek to flow,"
said Brian Weiser, an analyst with Pivotal Research Group.
Still though, Weiser said that it is not a flood of money, and
that advertisers are refraining from moving bigger chunks of their TV budget
because of a lack of premium content online.
In Weiser’s view, "programmers are taking baby steps
with investing in content," and "if they spend more, they will get
This article includes information drawn from research in the