Consumer & Entertainment Services
By Simon Dyson 24 Feb 2020
China music industry update, February 2019.
According to Ovum's Digital Content and Services: Video Internet Advertising Forecast, 2016–21, online video advertising – driven by mobile – is set for dynamic growth through to 2021, when global revenue will reach almost $50bn. However, TV's huge reach, and premium viewing experience, will continue to attract most spending on premium video ad campaigns through to the end of Ovum's forecast period in 2021 and likely beyond. And, as major video platforms, such as YouTube, seek further growth and profitability, they are looking to move further into the TV space, through initiatives such as the newly announced YouTube TV subscription service. Although incumbent TV players may see this as a threat, Ovum believes that digital and mobile video, and TV advertising, will continue to complement each other over the coming years.
While video internet advertising is set to grow at a very strong rate over the next five years, total spending will continue to be dwarfed by TV advertising, which is also set to grow on a global scale. Indeed, in 2021, global net TV advertising revenue will approach $200bn, around four times the revenue generated by video internet advertising.
YouTube, along with Facebook, dominates much of the AVoD (ad-supported video on demand) space, but it has struggled to convert its user base into paying users with its premium YouTube Red offering. YouTube's move into the linear TV advertising – and subscription – model with YouTube TV is, therefore, unsurprising. Advertising will remain key to its YouTube TV strategy, although the specifics of how much involvement YouTube will have in ad sales remains unclear at this stage. The vast majority of ad slots shown on YouTube TV will remain the preserve of YouTube's broadcast partners, who will likely be reluctant to hand over significant control of their ad inventory. But YouTube may be able to supplement the "skinny bundle's" low monthly subscription cost of $35 – designed to entice "cord-cutters" and "cord-nevers" – by selling a small portion of the ads served, essentially taking on the role of a pay-TV operator selling local ad spots.
However, the bigger ad opportunity for YouTube – at least initially – will be to attract more premium advertisers to run ads against the mass of on-demand content on its platform, which will benefit from being aligned with premium TV content. The opportunities to deliver personalized, targeted, cost-efficient, and precise programmatically bought brand messages, coupled with YouTube's mainly young audience base, should be attractive to advertisers and brands seeking to reach such consumers on a cross-platform basis. Furthermore, access to users' TV viewing habits will only strengthen YouTube's ability to serve such valuable addressable advertising across its platform against both premium TV and its long tail of user-generated content.
This also comes at a time when more TV players are beginning to explore and embrace addressable advertising strategies and programmatic technology. Development in this space will see TV becoming a more important – and accessible – aspect of multiscreen video ad campaigns. Platforms such as YouTube TV – which merge the strengths of both the online and TV ad and content ecosystems – will further bolster this complementary relationship, potentially paving the way for brands to buy a single campaign that efficiently addresses viewers across TV, OTT, and mobile platforms. Pay-TV operators, who are most at risk from YouTube TV, should look to foster a similar environment on their own platforms.
Moving toward a TV ad model is not a new concept in the online video space. Twitter, for instance, sells interstitial ad spots against its premium live broadcasts, while Facebook has recently started to experiment with inserting mid-roll ads in videos on its platform. But in Ovum's view, a reversion to a noninteractive TV-style ad strategy on mobile and social platforms lacks the innovation, and consumer appeal, to really threaten traditional TV broadcasters' ad revenue streams. YouTube TV – which will likely find its home on TV screens as much as mobile ones – will be a more natural fit for such advertising. However, should YouTube find itself directly involved in selling substantial chunks of YouTube TV ad inventory, and manage to differentiate the ads served to its TV viewers on a device-specific basis, it may well be able to truly offer "the best of both worlds" to both advertisers and viewers.
Digital Content and Services: Video Internet Advertising Forecast, 2016–21, ME0002-000730 (December 2016)
Addressable TV Advertising, ME0003-000790 (February 2017)
"Media on Messaging Platforms: Snapchat battles Instagram for dominance in mobile video ads," ME0002-000740 (February 2017)
"Why Twitter is wrong about the future of mobile video advertising," TE0021-000002 (February 2017)
"YouTube ditches unskippable 30-second ads to boost mobile engagement," ME0002-000743 (February 2017)
Matthew Bailey, Analyst, Digital Media
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