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Will Advertisers Pay Higher Local TV Ad Costs in a Targeted World?

August 30th, 2018   ||    by John R. Osborn

As TV and digital video buying morph into a hybrid T/V (Television/Video) marketplace, should we expect advertisers to pay higher local TV ad costs for reaching their “bull’s-eye” target audience?

Why Advertisers Have Traditionally Paid More

Historically, local TV ad costs paid by advertisers, when targeted to a specific audience in premium content, justify a higher cost-per-thousand (CPM) than regular, Run-Of-Schedule (ROS) ad buys. Olympic sponsors, for example, pay a premium to reach viewers since it’s a high-interest and high-quality event.

A Sunday morning talk show believed to attract more thought leaders will sometimes garner higher CPMs than primetime. And high CPM events like the Super Bowl or NCAA March Madness are a way for advertisers to reach even those who are usually lighter TV viewers. Program environment has been a key qualitative determinant of the value of a viewer.

Paying More in the T/V Marketplace

In the digital world, targetability at the viewer level and verified delivery of an ad define quality for buyers. Whether on a smart TV or mobile digital screen, T/V advertisers no longer need to rely on programming to reach quality audiences.

Specific audiences like dog owners in Tulsa or households with young children are now becoming addressable at the “glass” level. And because an ad impression viewed on digital platforms can be verified, buyers are buying realized impressions rather than an “opportunity for exposure.”

This measurability renders Wanamaker’s “half the money spent on advertising is wasted” obsolete. Through targeted ads, less of a buyer’s budget will be “wasted,” or spent on untargeted impressions. Higher costs per unit will be acceptable to advertisers since the value of inventory will be more clearly understood, and sellers will gain higher CPMs—a win-win outcome.

Calculating CPM

CPM (unit cost/total target impressions in thousands) can now be measured by media behaviors, such as:

  • Cost per confirmed view
  • Cost per completed view
  • Cost per interactive action
  • Cost per average time viewed
  • Cost per request (form filled out)
  • Cost per household above average in watching children’s programming

CPM can also be measured by user identifiers confirmed by smart screen registration, such as:

  • Cost per user based on GPS location/neighborhood
  • Cost per household with 1+ smart TV sets and a smart speaker
  • Cost per household with 2+ streaming video subscriptions

With new data technology and sources to measure audience viewing and even interaction with ads, the value equation local TV buyers use will likely include multiple “denominators” or bases. Buyers can define Key Performance Indicators (KPIs) weighted by multiple criteria. For instance, a buyer’s valuation might calculate: Unit cost / (50 percent dog owner confirmed view + 25 percent view of 10 seconds or more + 15 percent past inquiry action + 10 percent in the highest quintile of Nick Jr. and Disney viewing). Algorithms, ACR, and AI will ultimately help create super-values across vast amounts of viewer identifier data.

Depending on the sophistication and budgets of the advertiser and the ability of the seller to allow clients to “cherry pick” ad inventory, both sides will benefit from targeted ads. So a final word to TV stations and station groups—it’s important to invest now in technology and change management in order to service and attract these big-ticket ad spenders.

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