Pay TV operators are targeting new revenue streams by developing addressable TV advertising markets

During the latest Nextv Series Europe event, Dataxis hosted a panel discussion on pay TV addressable advertising opportunities to enable experts to discuss operators’ strategies and challenges when developing their business capabilities on advertising markets.

Offering addressable advertising enables operators to generate incremental revenues from advertising in a context where TV subscription average revenues per user (ARPUs) are either decreasing in most advanced TV markets or remaining very low in developing markets. In Ukraine where Volia is assessing business opportunities for addressable advertising, pay TV ARPUs are around €2.8 monthly. This puts operators in a tense situation where they struggle to extract significant margins from paid subscriptions and are looking for new revenue streams.

On most advanced markets, pay TV operators' revenues are being challenged by a growing traditional TV viewing disengagement and an increasing competition from digital video on demand services. In the UK, the leading pay TV operator Sky launched its addressable advertising platform AdSmart as early as 2013 to open opportunities to a larger pool of advertisers: local, regional and niche brands and businesses. According to David Sanderson, head of the AdSmart local development team in charge of developing advertising contracts outside of Sky’s regular major TV advertising agencies, the average addressable ad campaign budget reaches £10.000 with an entry level set up at £3.000. The cost efficiency of targeted ad campaigns is much more significant than traditional TV advertising for those specialized businesses. On top of getting new advertisers as clients, addressability enabled Sky UK to tailor their services to their paid customers preferences and usage habits. AdSmart addressability capacity covers over 130 channels across a total of 12 million pay TV households as of Q2 2020 by combining Sky and Virgin Media subscriber base.

Operators’ new role in advertising markets is redefining their relationships to other actors of the industry. Liberty Global has already launched addressable advertising in several of its operational markets through its Horizon 4 platform, available on their set-top-boxes: in the UK, in collaboration with Sky’s AdSmart, in Ireland and in Belgium. The operator is now assessing the development of addressability in Switzerland where its operating brand UPC reached an agreement on targeted advertising formats and innovations with other local operators and major broadcasters. According to Albert-Jan Tebbe, Director of Advanced Advertising at Liberty Global, addressable advertising is a way to strengthen the relationship between operators and broadcasters, in a context where they are usually navigating through competitive tensions regarding content rights: “Addressable TV advertising forces [operators and broadcasters] into cooperating with each other because they need to deliver the campaign to the viewer and this requires very complex integration, but also working together on an operational level”.

Technical challenges are nevertheless still significant and constraining the industry’s development. Developing addressability on a linear live multicast environment requires much more effort and investment from operators than what is currently doable and available on the digital advertising markets. In the past few years, advertisers have shifted more and more to online video services and pay TV operators are now required to invest in addressability to catch up with digital targeting capabilities. For players operating in less advanced markets, it is especially important that developing costs are optimized. As Arvils Kupris, Chief Product Officer at Volia, explained: addressability has to be included in the whole product development strategy, alongside multi screen strategy and platform developments, to minimize extra costs later on.

Operators can differentiate themselves from digital video on demand services as live TV and viewing on big screens still guarantee a much greater brand safety to advertisers than digital ad campaigns. The trustability of TV as a medium eases the conversation for operators reaching out to new advertisers through targeted campaigns opportunities.

To get more insights on this topic, catch up with our panel discussion with this link:

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