The future of Advertising: Addressable or Programmatic?

Traditionally, TV advertising was targeted based on two simple categories: age and gender. While print and other advertising advanced, TV ads continued using the old model, mainly due to lack of advanced statistics. This approach was particularly wasteful, because only a small portion of those who saw the ad were actually a part of the target audience. Even when Nielsen cohorts were combined in order to expand target audiences it only solved the problem on paper. In reality, the true target audience still only represented a small portion of viewers. 

Programmatic Advertising

While the exact definition of programmatic advertising is highly contested in the advertising world, it can be summed up fairly simply. Programmatic advertising entails using set top box (STB) data to inform the purchase of available airtime. This process is much more specific than the traditional age-and-gender route, as it uses data to determine when the highest concentration of a target audience will be watching.

The extensive STB data now available to advertisers enables them to produce this type of advertising. Programmatic advertising takes much of the guesswork out of purchasing avails, which allows advertisers to cater to a very specific target audience based on factors like income and family size in addition to age and gender.

This type of advertising drastically reduces wasted reach by advertisers. More specific data allows them to target a specific audience more accurately, which in turn increases the efficiency of a particular campaign. Programmatic advertising also allows advertisers to target a more specific audience, meaning that ads themselves can be more specific.

One potential downside of this strategy is that specific segments of viewers might see the same ads over and over. STB data allows advertisers to greatly narrow their target audiences. Unfortunately, if the target audience is too narrow, even one well-placed ad won’t contribute much to an overall campaign. More avails would need to be purchased to reach an adequate number of viewers, which would inevitably lead to viewer burnout.

Despite this risk, programmatic advertising has obvious benefits. It can decrease wasted reach, in turn increasing return on investment (ROI). While multichannel video programming distributors (MVPD) sometimes raise their costs for programmatic ads, the potential ROI is still high. A small increase in the true audience will lead to a substantial increase in campaign efficiency, making programmatic advertising a step in the right direction.

Addressable Advertising

While programmable advertising reduces wasted reach by advertising to more specific, segmented audiences, it does not entirely eliminate wasted reach. By using data to target certain viewers, programmable advertising moves us toward efficiency. The next step is to use data to send advertisements only to members of the target audience, eliminating wasted reach.

This practice is known as addressable advertising, and it’s already being used in a limited capacity. Addressable advertising differs from traditional TV advertising in several important ways. First, this type of advertising involves buying specific audiences, rather than specific time slots. Essentially, it eliminates the guesswork of determining who will be watching a particular program at a particular time.

Addressable advertisements work using individual set top boxes, and they play only when the audience composition includes the ad’s target audience. There is virtually no wasted reach with this type of advertising, because ads only reach the appropriate households. Furthermore, viewer burnout is far less likely, because the system limits the frequency of ads for smoother distribution.

When implemented, the number of ads available can range from a handful to hundreds. Companies that have implemented addressable advertising either use cable plants to send specific ads to STBs, or they pre-program customers’ DVRs with appropriate ads.

This approach is more effective, which saves advertisers money. The cost per thousand impressions is significantly lower, since impressions are no longer wasted on inappropriate audiences. Furthermore, MVPDs also make money with this approach, because multiple advertisers can purchase a single avail.

Transitioning from Programmatic to Addressable Advertising

While addressable advertising is clearly a more efficient method, programmatic advertising is still the most common approach. Addressable advertising is available in only about 30 million pay-TV homes. Because MVPDs are slow to offer addressable advertising, most advertisers must still use programmatic ads for the other 75 million homes. Still, MVPDs are slowly offering more addressable advertising.

Within the next two years, more than 70 million homes should have addressable advertising. For this reason, up to 90 percent of advertisers have already begun expanding their addressable campaigns, and MVPDs have caught on. More have announced plans to deploy this type of advertising, and others will probably follow suit. Furthermore, programmatic platforms have also announced plans to explore addressable advertising.

For now, programmatic advertising is the most practical way to reach target audiences efficiently, especially where other methods are not available. That being said, addressable advertising makes the most effective use of TV audiences, and is likely the future of TV advertising.