A Roadmap for 2017: The State of Online Video Advertising

People have been consuming media and communicating on mobile for years, and 2016 was the year that ad dollars finally followed suit. Digital advertising revenues were up across the piece, and mobile was the engine of growth.

Media buying agency Zenith forecast that 75 percent of global internet use will be mobile in 2017, with 60 percent of global digital ad dollars pouring into mobile advertising by 2018. Mobile ad expenditure in 2018 will total $134 billion it predicted, "which is more than will be spent on newspaper, magazine, cinema, and outdoor advertising put together."

This trend was clear in the U.S., where mobile advertising surpassed desktop search as the largest online ad format, making 47 percent of digital revenue in the first half of 2016, according to the IAB/Price Waterhouse Cooper (PwC) "Internet Advertising Revenue Report," and equally apparent in the U.K., where budgets invested in mobile outstripped those on desktop PCs for the first time.

"It's a significant moment, as mobile now overtakes desktop," declared Tim Elkington, IAB chief strategy officer, reporting the figures in October. "Marketers devote more ad spend to mobile as they increasingly cotton on to the fact that people essentially carry an ad platform with them wherever they are."

The study, commissioned by the IAB and conducted by PwC, showed the amount spent on mobile display ads (£802 million) overtook that of PC and tablet display (£762 million) for the first time during the first 6 months of 2016.

Total U.K. ad spend grew at its highest rate since 2010 in 2015, increasing by 7.5 percent to £20.1 billion, according to the "Advertising Association/Warc Expenditure Report," vouched for by IAB U.K.

Internet ad spend increased 17.3 percent to £8.6 billion, with mobile accounting for 78 percent of that growth, increasing 61.1 percent for a total of £2.6 billion.

Paid-for search is still the dominant medium, totaling £2.49 billion, or 53 percent of digital spend, with mobile accounting for much of this growth, according to IAB U.K.

Smartphones and tablets now generate more than half of all online transactions, according to the data. On its current trajectory, mobile advertising could overtake spend on broadcast TV ads in 2017.

The study underlined that video, social, and native are the fastest-growing ad formats. Spend on video ads overall grew 67 percent to hit £474 million during the first half of 2016, with video now accounting for 30 percent of all display ad spend and 37 percent of all mobile display.

Ad spend on social media sites rose 43 percent to £745 million, and social media spend on mobile alone grew 64 percent. Mobile now accounts for 80 percent of spend allocated to social, according to the IAB/PwC study.

As social media consumption becomes increasingly animated on platforms such as Facebook and Snapchat, the majority of media professionals expect video to overtake static ads in media spend within the next 5 years.

Media buyers and sellers predict the growth in video ad spend is likely to come from new formats such as 360 ° video and VR according to the "UK Mobile & Video Advertising Truths" study published in September by Rubicon Project and conducted by Exchange Wire.

The latest Warc numbers also show that the internet now accounts for more than half of U.K. advertising excluding direct mail, making the U.K. the first major Western economy to reach this milestone.

All of this means the U.K. remains "comfortably the largest internet advertising market in Europe and third globally, behind the U.S. and China," claims the Advertising Association. It forecast U.K. ad spend to post 4.2 percent growth in 2016 and 3.8 percent growth in 2017. While economic uncertainty surrounding the U.K.'s vote to leave the EU is a factor, internet spend forecasts were actually revised upward to 12.3 percent in 2016, with mobile advertising predicted to increase 39.3 percent in the same period.

"Investment in U.K. advertising remains strong this year, and the trend towards digital and mobile continues—but the medium term is more complex," says Tim Lefroy, former chief executive at the Advertising Association.

Work Continues on Reassuring Brands

Viewability—especially of online video content—was one of the key stories in online advertising in 2016. This has been driven in large part by GroupM, which took the "100 percent viewable" requirement it announced in 2015 and put it into effect in many additional countries outside of the U.S. in 2016.

"While spend on video ads has risen, advertisers are still looking to understand if and how their video advertising efforts have positively shifted brand opinions," says Videology EMEA managing director Jana Eisenstein (right). "In 2017, more agencies will be demanding a reliable, quantifiable way to show their clients how effective video is in driving results.

"As the programmatic market matures, substantial progress continues in real-time measurement, tracking, and ad-decisioning to improve brand safety, viewability, and combat nonhuman traffic," she continues. "This must continue if the industry is to continue to operate effectively to scale and reassure its key clients, the advertisers."

Brightcove has been at the forefront of a number of other solutions for viewability including a partnership with Moat analytics, HTML5 VPAID, and even viewability reported successfully with server-side ad insertion.

"With Flash VPAID (one of the primary ways that companies have tackled viewability to date) going away with the evolution of browsers, publishers and advertisers are now talking about viewability all of the time," observes Mike Green (below left), vice president of marketing and business development, media for Brightcove.

"There will be more use of multiple data sources in 2017 as more companies try to mesh fragmented data sources into a unified view across devices," she says. "Those who are successful will be able to use sources such as TV measurement, broadcasters login data, operators subscriber data, advertisers customer data, and third parties with all sorts of behavioral, purchase, and geolocation-derived data to create a more powerful understanding of their target consumer."

While acknowledging the essential place of Facebook and Google on media plans, Eisenstein contends that advertisers will increasingly argue that they are subject to "the same third-party measurement as legacy media brands to provide holistic and comparable campaign reporting."

There is no question that as measurement improves on mobile devices, more premium broadcast/network content will be made available there, and it will be accompanied by the ad loads that that content warrants.

"Additionally, as screen sizes, mobile data caps, and Wi-Fi offload all continue to grow, so too will the volume of viewing, driving mobile video ad inventory up further," says Green.

Ad products are evolving to bridge online and TV. Working groups like the NAB Ad Tech Committee are trying to pull together the players in the digital and broadcast sides of the premium video ecosystem.

"It's not surprising that a broadcast ad trafficking company, SintecMedia, acquired leading digital trafficking company Operative to help streamline these disparate processes," notes Green.

Programmatic Gains Ground

According to eMarketer, programmatic spending on TV ads will more than double to $2.16 billion (£1.48 billion) in 2017. The research firm also predicts that the amount will continue to increase to nearly $4.4 billion (£3 billion) by 2018 and account for 6 percent of total TV ad spending.

"The biggest hurdle to programmatic adoption is the unification and sharing of data to let buyers get scale," says Green. "In this regard, at least in the U.S. there is very big scale available from network groups like NBCU and Turner, and the MVPDs like Comcast. Different pockets of the ecosystem are also finding a way to offer data-targeted inventory—like the broadcasters who are moving to ATSC 3.0."

Videology's 2016 UK Video Market At-A-Glance identified the continued convergence of TV and video buying with 9 out of 10 advertisers continuing to buy video ads in the same guaranteed manner as they do TV spots.

"The importance of guaranteed upfront buying and private marketplaces will continue," predicts Eisenstein. "TV buying models will continue to be the basis of trade but will leverage the benefits of technology to manage an increasingly complex and fragmented buying portfolio."

Videology believes we're seeing a step change in the role of ad tech in TV. "We will see a dramatic rise in the deployment in ad-tech across all media channels, with a particularly speedy activation in TV," says Eisenstein. "In the U.K., 2017 will be seminal in the development of programmatic TV as Sky, Virgin, and BT all line up progressive ad-products using first-party data and set-top-box technology. These platforms will open up full, addressable TV, with cross-device measurement that is as effective on the main TV screen as it is across its digital cousins."

Ad Tech Consolidation

The M&A deals that took place in the ad tech space in 2016 are a continuation of a trend that's been in train for many years.

"This year, we have seen fewer buyers, fewer ad tech startups with desirable scale, and larger exits," says Green. "We've seen more M&A deals done with data in mind—rather than the nuts and bolts of ad infrastructure and delivery."

Verizon's $4.8 billion bid for Yahoo (which itself bought BrightRoll in 2014) to merge with its multibillion dollar acquisition of AOL is the major play. Others include IBM's late-2015 purchase of the Weather Channel and Adobe's acquisition of TubeMogul for $540 million in November.

"These demonstrate that some very large players with adjacent assets (mobile networks and subscribers, big data/marketing cloud systems) are now dialed into the advertising and digital marketing opportunity," suggests Green. "Next, they are looking to transform the industry. In this sense, Microsoft's purchase of LinkedIn in 2016 could be a harbinger of many more things to come."

Increased consolidation means brand advertisers and marketers don't have to look for multiple technology providers to solve their needs. With its move, Adobe enters the programmatic ad buying space giving customers a chance to spread their video ad bets across desktop, mobile, and TV.

"Publishers and broadcasters are growing leery of handing too much of their content, ad business, and audience to external platforms," says Jonathan Wilner, Ooyala's vice president of products and strategy. "Content providers are recognizing that having hybrid approaches, blending owned and operated with third-party strategies, is the best course of action. In doing so, an agnostic ad partner without conflicting publishing businesses, and who's focused on driving value for them—and them alone—is critical. We're certainly seeing that with our own customers, and it is certainly core to the Adobe and TubeMogul acquisition."

The acquisition also drew attention to the blurring lines between ad tech and marketing tech (martech). "Quality SaaS software makes it simple for the two to integrate, supplying greater value to customers— especially when it's a part of a larger solution set that addresses multiple needs in the market," says Wilner.

Cognitive Intelligence Unlocks Insight

One of the prominent trends driving video ad tech M&A is the need for large amounts of consumer insight and video quality that drives programmatic personalization, engagement, and increased CPM or more video ad views. IBM and Brightcove call this "cognitive," though it also goes by the terms "machine learning" or "artificial intelligence."

Equity funding of AI-focused startups reached an all-time high in Q2 2016 of more than $1 billion, according to researcher CB Insights.

"We are at a seminal moment in computing. We are evolving from a mobile-first to an AI-first world," Google CEO Sundar Pichai pronounced in October.

Iddo Shai, director of product marketing, video publishers and OTT TV for Kaltura, points to the $700 million acquisition in October of data management platform Krux by CRM giant Salesforce (a potential suitor for Twitter). "That's a very strong combination that marketers can use to gather more data about audiences," he says. "This year has been about marketing tech rather than ad tech."

Salesforce uses an AI-dubbed Einstein to power marketing and sales services. It is not shy of saying that just like the arrival of the PC, cloud computing, and the mobile smartphone, "AI is going to fundamentally change the way things work, forever. AI is not killer robots. It's killer technology."

Capturing and managing TV/video platform data so it can be exploited by advanced predictive algorithms is becoming a key focus area for the media industry. Kudelski Group's digital TV branch, for example, is developing algorithms to help operators understand the behavior of their subscribers, predict churn, and optimize their catalogue.

Twitter's $150 million acquisition of London startup Magic Pony Technology in June 2016 is another indicator of AI's growing media application. Magic Pony Technology assembled a team of experts in advanced neural networks and addressed the problem of reconstructing HD video from a compressed stream.

"The TV ad industry is rapidly evolving to become a data-driven business where cognitive science will be key to ensure proper personalization and monetization," says Simon Trudelle, senior director of product marketing at NAGRA. "From the operation side, let's not forget OTT delivery can also benefit from smarter algorithms to improve streaming performance, reliability, and overall QoE. And many more micro-services will tap AI for additional smarts and improvements."

TV Still Dominates

In a global first, the Netherlands' TV industry body Stichting KijkOnderzoek (SKO) began reporting online TV ratings data in June.

Developed in partnership with Kantar Media, the move will allow advertisers, agencies, and broadcasters to monetize beyond the main TV set and analyze viewing across smartphones, tablets, and PCs for the first time—something BARB, the U.K.'s TV industry body, has been working toward.

"Hybrid approaches to measurement are fast becoming the chosen route in many of the markets we operate," says Andy Brown, Kantar Media's CEO and chairman. "Our blueprint for audience measurement firmly places high quality data integration and high quality panels at the center to deliver total video."

BARB published the second of two beta TV Player Reports in June as part of a longer-term plan called Dovetail to merge online and traditional panel viewing data. The report incorporates figures from TV player apps including All4, BBC iPlayer, and Sky Go; iOS; Android; and games consoles both live and on-demand.

Results of the reports revealed online views totaling 1.18 billion minutes a week, a figure dwarfed by the 90 billion minutes of TV/STB consumption, with Sky Sports channels dominating ranking for most live-streamed (accounting for over 10 percent of total player viewing).

"BARB is the U.K.'s only joint-industry, audited measure of viewing to online TV—you can't get that from the IAB," asserts Justin Sampson, BARB's CEO. "The TVPR showed that the total amount of views on TV player apps—those by the major broadcasters who have chosen to put themselves under scrutiny of our standards—is 1.18 billion. Of that, about 15 percent is on a smartphone and 45 percent on a tablet.

"It's not like smartphone viewing is growing really quickly and all others are subsiding. Certainly there's a growth in viewing to mobile which we are tracking, but I might be more cautious than those with a vested interest in adding video to their mobile products when it comes to behavioural change. When it comes to watching quality content people will head toward the biggest screen they can get their hands on. The overall volume of viewing on mobile devices is 1.5 percent, and it's not growing at such a rate that it will suddenly be 5 percent next year. We are a long way off from online dominating viewing habits."

Ahead of Dovetail's next stage, BARB is evaluating two data sets (from Kantar and Nielsen), with a view to implementing one of them in a future standard. "We may publish some of this data in advance of fuller merged data for which the target is January 2018," says Samson.

Thinkbox Fights YouTube Claims

Thinkbox, a trade body backed by the U.K.'s commercial broadcasters, felt the need to counter what it called "unhelpful, misleading research trying to undermine TV" sponsored by Google.

It referred to YouTube's claim that it reaches more 18-34-year-olds on mobile than any U.K. commercial broadcaster.

This was like "comparing a meter of gold chain with a cubed yard of solid gold," says chief executive Lindsey Clay on Thinkbox's website. "It ignores the fact that they spend vast amounts more time watching TV, and are so deeply engaged with TV they talk and tweet about it. It also ignores the fact that TV advertisers plan and buy across all TV, not just one specific channel."

Thinkbox responded that 0.6 percent of video advertising is seen on YouTube; 94 percent is seen on TV, in full and with sound. For 16-24-year-olds, that rises to 1.4 percent versus TV's 87.6 percent.

"YouTube could deliver more advertising if it monetized its long tail or stopped offering TrueView skippable ads," says Clay. "The fact that 80 percent of YouTube's viewing is done by 20 percent of viewers also hampers their reach potential for advertisers."

According to analysis combining comScore data with BARB data, broadcaster VOD stream data, and Rentrak box office numbers and calibrating this metered/census level data with the IPA's Touchpoints study—the total amount of video the U.K. is watching increased by 15 minutes a day in 2015. TV—live, playback, or on-demand across all screens—had a 76 percent share of total video viewing in 2015.

"We need to show as accurate a picture as possible of how much TV we are watching—and where TV sits in the emerging video world," says Clay. "With so many different forms of video out there it can be confusing, so it is important to get a grip on what is really happening. These figures show that TV dominates the video world for all age groups."

YouTube executives suggest that Thinkbox's study substantially underestimates both the size and growth of YouTube in the U.K., reporting that globally, the time spent watching YouTube has increased an average 50 percent for 3 straight years, and that watch time is growing at 60 percent year on year, whereas Thinkbox approximates this at 30 percent.

Thinkbox insisted it wasn't arguing against investment in YouTube, but it was questioning "very forcibly" where that money comes from. "The direction of travel is not from TV to online video," says Thinkbox chair Tess Alps in an interview with Campaign Live. "It's from static text-based advertising to all forms of video advertising. We understand why YouTube would rather their growth was funded from TV rather than risk its money coming from the poorly performing, ad-blocked, bot-infested world of online display that Google plays such a significant role in.

"We have a different vision—of expanding budgets for all video advertising, within which linear TV might take a smaller share but of a much bigger cake, where its revenues also grow."

Thinkbox suggested that YouTube/Google's own staff members in Europe didn't know the duration of viewing to YouTube ads nor did they completely understand how the reach algorithm (which was the origin of the 24 percent claim) had been calculated.

In November, Thinkbox issued further research. TV advertising "is six times more memorable than the next best competitor and the medium that is most likely to drive emotion, make people laugh, drive conversation and be liked. The pattern is mirrored for 15-24-year-olds."

This article was published in the Spring 2017 European edition of Streaming Media magazine.

Adrian Pennington's article first appeared on OnlineVideo.net