Networks like NBC, CBS, or ABC sell their content to cable companies. Those cable companies then deliver that content to households via cable subscription fees. When networks sell their content, they typically include two minutes per hour of blank space within the content, or four 30-second ad spots.
The cable companies then resell that blank ad space to advertisers and deliver those ads via their set-top boxes. The power of this is that cable companies know who is consuming specific TV shows and, in many cases, they have the ability to deliver specific commercials to specific households. This is the basis for addressable TV: the ability to deliver a specific message to a specific household within a specific piece of content, one-to-one, instead of putting the same commercial in a piece of content for all audiences.
This is great for marketers because they LOVE when things can become more targeted, but they’re still just starting to embrace it. Here’s where we see addressable TV going:
It’s estimated that the U.S. addressable TV marketplace is about $300 to $400 million this year and will likely grow to $600 to $700 million next year. Interestingly enough, it’s actually pretty small when compared to the overall TV advertising market, which is about $70 billion. So, why aren't advertisers taking advantage of it?
As addressable TV is more widely used and scaled, it will command higher CPMs than traditional CPMs through the long-tailed cable networks. For example, some of the smaller cable networks may find it more cost efficient to take more of their inventory, rather than just two minutes, and put it into these addressable platforms and have the cable companies in that environment. Cable companies have the data, so they'll be able to monetize that content; they understand which household is watching which show.
At the same time, a number of the big networks will find ways to claw back those two minutes so that they are selling less inventory for the cable companies. Ultimately, we'll see the world split into two pieces: on one side, the cable companies will leverage data-driven techniques to monetized inventory. On the other side, inventory will be clawed back by the networks to be much like what you see with programmatic advertising today.
Regardless, the world of addressable TV will have a massive change in the way that television is bought and sold and will, ultimately, be good for advertisers, TV companies, and cable companies, alike.