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ADVERTISING OVERVIEW Issues, Challenges and Opportunities ADVERTISING OVERVIEW Issues, Challenges and Opportunities Susan Athey 1 Agenda 1. The Role of Advertising 2. The Evolution of Advertising Channels 3. Evolving Monetization for Publishers 4. Measurement and Attribution 5. Competition Issues 2 The Economic and Societal Benefits of Advertising For Advertisers For Content Producers . Introduce new products . Revenue from advertisers . Help retailers merchandize products and draw consumers to stores . Content is more widely available in ad-supported models, versus subscription or other pay models For Consumers of End-Products For Consumers of Content . Information facilitates competition . Free music radio; free TV programming and movie subsidies . Low prices enabled when firms achieve scale . Subsidized news economies through increased demand . Internet Content: – Google, Facebook, Yahoo! – Free video; Free educational content; Free news and financial information – Free product search (cars, financials) – Free apps 3 Advertising Platforms: Traditional View of Two-Sided Market Matching Viewers and Advertisers Viewers Advertisers .com • Content producers serve • Understand audience of as two-sided platform content producers • Compete for consumers, • Choose content based on • Aggregate across content sell access to advertisers quality, ad load to maximize reach and • Concerns about market minimize duplication power, e.g. of local newspapers 4 Buyers and sellers of TV advertising are relatively concentrated Concentration of TV advertising sellers* Concentration of TV advertising buyers** Viacom & CBS 17% NBC (NBCU) 14% Top 5 Top 200 66% programmers advertisers account for 12% Disney (ABC) account for 60% of TV 66% of TV 40% ad revenue 44% ad spend 10% Fox 8% Warner Media (Turner) Sources: Statista, AdAge “200 Leading National Advertisers 2018 Fact Pack” * 2015 data. ** 2018 data. 5 Advertising Platforms: Impact of Digital Viewers Advertisers .com • Measuring ROI • Web: search and display ad • Effectiveness platforms; fragmented • Upper bound on time • Duplication publishers • Mobile increases • Attribution • Mobile: expand existing addressable time • Fraud platforms, new location-based • Internet increased • Safety or ads-in-app platforms switching • Tracking consumers across • Digital video: expand existing • Digital video, cord cutting platforms and media platforms, new platforms, ad- • Reaching all consumers free services 6 Digital Advertising: Intermediation Important due to Fragmentation Search Advertising Intermediated Display Advertising First-Party Display Advertising (AKA walled gardens) Search includes first-party advertising as well as intermediated search advertising (publishers) and distribution (e.g. browsers) 7 Complexity within Display Advertising Large Variety of Different Purchase Paths Source: eMarketer 8 Why do companies advertise? The Marketing Funnel The Consumer Journey AWARENESS INTEREST DESIRE ACTION POST- ACTION Target Audience 9 The Funnel and Advertising Channels The Marketing Funnel . In the traditional view, display Television (and TV) advertising is Advertising typically top-funnel brand $70 advertising used to generate billion* awareness For catching attention of a Digital Video o Brand Advertising very large number of Advertising consumers, TV is still king $28 billion** . Search advertising is typically Display Advertising direct-response advertising which falls towards the end of $25 billion** the funnel . Performance Search Some challenges and Advertising Advertising changes in the view (Direct-Response) . Nonlinear journey $36 billion . Tracking consumers throughout Source: eMarketer, 2016. Advertising spend is U.S. only. * Includes Broadcast (national, syndication, and spot) and cable TV. *** Banner advertising only, social media excluded. ** Digital video includes advertising that appears on desktop and laptop computers as well 10 as mobile phones, tablets and other internet-connected devices; Agenda 1. The Role of Advertising 2. The Evolution of Advertising Channels 3. Evolving Monetization for Publishers 4. Measurement and Attribution 5. Competition Issues 11 A History of Entry by New Media The Flow of Ad Dollars Over Time . Print and magazines have reigned supreme up until the eighties . TV is the biggest piece of revenue in the ad market through 2012 . Radio has been surprisingly stable for a long time . Despite its fast growth, the Internet trailed TV in its early growth . New media captures consumer attention; but advertising within the various media channels are not necessarily substitutes Graphic by Bloomberg Businessweek; Data: DBS Research 12 Entry of TV v. Internet Entry of TV (1940-1970) Internet Entry (1980-2012) Source: Gentzkow (2014) 13 Entry of TV v. Internet Entry of TV (1940-1970) Internet Entry (1980-2012) Advertising Revenue per Hour by Media in Recent Years $0.80 $0.70 $0.60 Social network $0.50 Magazine $0.40 Print Newspaper $0.30 Digital display & search TV $0.20 Video $0.10 Radio Digital radio $0.00 Source: eMarketer 15 Video and TV consumption is shifting devices and changing venues Avg. Time Spent per Day with Video by US Adults, By Device US Adult Pay TV and Non-Pay TV Views, by Type Source: eMarketer, 2017. 16 Digital Video Shifting to Mobile Digital Video Ad Spend, By Platform . The desktop-to-mobile shift has occurred rapidly . Different characteristics of mobile video vs. desktop; shorter attention span, sound and captioning, etc. Source: PubMatic 17 Streaming services are proliferating, creating demand for SVOD bundles Streaming Services SVOD* As streaming services and content fragment, demand for bundles arises, for example, Prime Video Channels: Ad Supported* Source: IAB Video Landscape Report (2018), Barron’s, The Verge. * Some services, e.g., Hulu and CBS All Access, are hybrid. 18 SVOD has undergone rapid penetration growth, but appears to be plateauing Digital Video User Penetration in the US, by Type 50% 45% SVOD, subscription- . SVOD appears to be based video on demand reaching saturation, 40% services (e.g., Netflix) predicted to plateau 35% . 30% TVOD, transaction-based TVOD and EST video on demand services or penetration hold steady 25% pay-per-view offers (time- limited digital access to 20% . Ad-free content reduces premium video content) supply of user attention 15% EST, electronic sell- for advertising 10% through (video content that is purchased in a one-time 5% transaction) 0% 2016 2017 2018 2019* 2020* 2021* 2022* Source: Statista, 2018. 19 Millennials and Gen Xers shifting away from TV; Digital is reaching valuable younger users Average Daily Minutes on Platform by Age Group, U.S. Millennials spend more time consuming digital 600 media than live TV 47 46 App/web on a tablet 46 88 App/web on a smartphone o Their digital media 134 consumption is 450 23 Internet on a computer 19 TV-connected device* 33 predominantly mobile 33 171 30 . It should be noted, 300 151 38 however, that younger 50 viewers are watching 30 415 Live + time-shifted TV more TV via TV- 358 150 70 connected services and 221 time-shifted via DVR and 120 video-on demand (see 0 next slide for details) Age 18-34 Age 35-49 Age 50-64 Age 65+ *TV-connected device includes: DVD / Blu-ray, Game Consoles, Internet connected device Source: Nielsen, Q2 2018 20 A new challenge for video advertisers: the Unreachables . 47% of Millennials and Gen-Xers . Mobile-first or Mobile-only . 43% watch streaming only (cord-cutters and cord-nevers) . $1.3T annual buying power in US . Most streaming video (e.g., Netflix) has no advertising Sources: Heart and Science.- Wharton Future of Advertising, Sep 2017; Piper Jaffray / eMarketer. 21 Overlapping and Incremental Audiences Legend: TV Reach Incremental Desktop Reach Desktop Audience Overlap Incremental Mobile Reach Mobile Audience Overlap 120 109.3 MM 100 12.7 12.7 11.6 14.6 11.6 80 5.1 60 Reach (Millions) Reach 40 85.0 85.0 20 0 TV Desktop Mobile Total Source: comScore, 2016 22 Agenda 1. The Role of Advertising 2. The Evolution of Advertising Channels 3. Evolving Monetization for Publishers 4. Measurement and Attribution 5. Competition Issues 23 Freemium Monetization: Ad-Supported to Subscription The Freemium Marketing Funnel 24 Thriving freemium businesses … and thousands of medium and small size apps with in-app purchases 25 The Freemium model: free vs paid subscribers Freemium Model Norms Subscription Type User Share Revenue Share Monetization Mode Advertising, Source of Free 95%-98% 20% - 50% paid leads Paid 2% - 5% 50% - 80% Subscription 26 Subscription services are growing rapidly across many verticals Digital Subscription Revenue $500M $400M $300M $200M $100M -- 2014 2015 2016 2017 2018 “We expect news provides to focus increasingly on generating revenue from subscriptions […] Whereas certain titles had a 10:90 ratio of subscription to ad revenue in 2012, we predict it may be 50:50 by 2020.” Source: Mary Meeker Internet Trends Report 2018, New York Times public financials, Deloitte Technology, Media and Telecommunications Predictions 2018 Report. 27 Agenda 1. The Role of Advertising 2. The Evolution of Advertising Channels 3. Evolving Monetization for Publishers 4. Measurement and Attribution 5. Competition Issues 28 Overview of challenges to measurement and attribution • Advertising effectiveness measurement is really, really hard – Signal-to-noise ratio implies huge experiments needed to learn (e.g. Lewis and Rao) – Non-random assignment of advertisements; observational studies biased even using best-practice methods – Randomized tests increasingly prevalent but face challenges in implementation
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