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Straight Talk Media & Entertainment

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A couple of weeks ago, I argued that bad ad experiences could seriously harm the outlook for the ad-funded digital video. One argument against is that, in a world of big data, analytics, and personalization, every video ad will be one that each viewer wants to see. The problem with this rather utopian view is that for many of the world’s wealthiest – and dullest – brands, the value of advertising will continue to lie with forcing people to watch ads they don’t want to see.

Before I explain why, it’s worth stating that some of the fundamental technological and economic challenges of making digital video advertising work are far from being solved.

Take YouTube. I’m a pretty heavy user of YouTube and various other Google services, so you’d think YouTube would be able to serve me relevant ads. Yet, despite all Google’s talk of artificial intelligence, machine learning, and neural networks, recent examples include ads about cars (I don’t drive), women’s jeans (I don’t, er, wear women’s jeans), and get-rich-quick gurus with Lamborghinis (don’t get me started). On a recent trip to Denmark, YouTube kept serving me ads about Danish web hosting services – in Danish (and no, I don’t speak Danish).

My experiences with ad-funded online services from more traditional TV providers have been more painful. One broadcaster-backed offering seems to serve up the same five or so non-skippable ads during each 2-3 minute pre- and mid-roll segment inserted throughout its shows. This problem is probably common across broadcaster-backed services given that a number of ad-insertion vendors have only recently began promoting the ability of their systems to avoid serving the same ad to the same viewer twice as an “innovation.”

Three arguments why video advertising isn’t working

What could these experiences be telling us about video advertising? One, the technology isn’t delivering on its promise. Two, not enough advertisers are buying into the concept. This means that even pioneers like YouTube can provide only relatively generic selections of ads to individual users, simply because it does not have that many ads to choose from.

That’s not to say accuracy won’t improve or the number of advertisers won’t grow. It’s early days for both. But we should not assume that either will reach a point where even a leading digital video service will be able to consistently deliver an array of ads that each viewer wants to see. Attracting enough advertisers will prove a particularly thorny problem for individual service providers as the growing number of offerings flood the market with video ad slots, a commodity known as inventory.

The third reason is even more fundamental – but paradoxically lessens the problems of accuracy and excess inventory. As discussed in my previous article, advertising is about delivering viewers to brands. Ad-funded services that sell ads have a greater financial incentive to serve ads that brands want people to watch, rather than ads that people want to watch. This is why many in the digital ad business now talk less about “personalizing” ads for viewers and more about helping brands to “target” ads and “address” specific audiences.

The central challenge of the kitchen towel conundrum

Which leads us to the problem of boring brands. Take kitchen towel. I regularly buy it, use it, and generally find it quite useful. Yet I never want my viewing of, say, the latest tense crime drama to be interrupted by a non-skippable ad about kitchen towel.

But the makers of kitchen towel are desperate to get their brands in front of me, as there’s little to distinguish one product from another in many consumers’ eyes. And they have plenty of money to pay ad-funded services to make that happen. One market-watcher estimates that the paper products segment of the household goods market accounted for $60bn in revenue in 2013, or nearly double the amount Ovum estimates was generated by movie box office sales during the same year.

This discrepancy highlights another aspect of video advertising's boring-brand problem. In addition to differences in budget, brands with products and services that people are interested in and even passionate about – movies, clothing, sports goods, consumer technology, etc. – need less and less to force people to watch video ads about their offerings.

This shift will go well beyond these brands using skippable ads on YouTube and Hulu, instead of non-skippable ones. The most forward-thinking companies will direct their efforts more towards creating their own media and fostering communities via social networks, in order to turn customers into fans and even ambassadors for their brands. The implication for digital video platforms is that their sites will be filled less with ads about existing brands that people want to see, and more with those about boring brands that they don’t want to see.

The limits of making good ads for boring brands

It is, of course, possible to make engaging advertising about boring products. Some of the most viewed videos on YouTube are ads from fairly pedestrian brands presented as stand-alone pieces of content (which raises another irony for ad-funded digital video platforms which I won’t go into here). A number of broadcasters and digital video platforms are also innovating with branded content that more subtly entwines boring brands into programming people actively want to watch.

But these examples tend to be the exceptions rather than the rule. And it seems inevitable that the inescapable boring-ness of so many lucrative products and services will mean many brands will pay to force people to watch ads they don’t want to see, no matter how innovative the industry gets. I doubt, for example, that we will ever see so-called “fan-bois” obsessing over the latest kitchen towel re-issues and colorways in the same way they do about sneakers.

The classic defense of bad ads is that good media has to get paid for somehow. This made some (counter-intuitive) sense when TV audiences were captive, with few options and little control over their viewing. Today, audiences are free, able to use various technologies and services to choose from and enjoy an abundance of media ad-free. To attract and retain tomorrow’s viewers, ad-funded video services would do well to set limits on what they’re willing to do for boring brands, no matter how much money they are willing to pay.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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