STRATEGIC INSIGHT. Addressable TV. The end of Black Box television advertising. April 2014

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1 April 2014 STRATEGIC INSIGHT Addressable TV The end of Black Box television advertising The television landscape in Germany and worldwide is changing. TV advertising efficiency is decreasing while online advertising and mobile devices are becoming more and more important. With Addressable TV customers can be precisely targeted or addressed with customized television advertisements through the integration of an internet-connection-based return channel. It enables performance marketing in television advertising. The key success factors for Addressable TV are the integration and commitment of the whole television advertising chain, the standardization of advertisements and campaigns as well as the infrastructure spread The case study of the form of Addressable TV called Linked Advertising with HbbTV Pairing shows that Addressable TV achieves superior click-through and conversion rates compared to average online banner advertising. Disclaimer Mücke, Sturm & Company GmbH Theresienhöhe Munich Telephone Telefax Coverbild MS&C Copyright MS&C 2014 This document is intended for exclusive personal use only. Distribution is only permitted in an unaltered form. Utilization of all content and presentations in third party documents is only allowed with prior consent of Mücke, Sturm & Company GmbH and requires accurate citation.

2 The television landscape in Germany and worldwide is changing at a remarkable pace. Technical progress is enabling the development of new ways for video consumption on the internet and increased content breadth. These factors more and more are forcing television advertising into competition with online advertising for marketing budgets. Advertising with mass media television is in general un directed. Efficiency and success can hardly be tracked compared to online advertising. Performance control is only possible through indirect methods and random sampling measurements. At the same time the viewer s attention is attracted by second screen devices which have reached a high dissemination level in Germany. The penetration of smartphones reached a rate of 40% in Germany followed by a tablet penetration of 17%. 1 During commercial breaks half of these second screen device owners turn their attention towards their second screen device. 2 The problem for television advertisers is that the impact of television commercials decreases, as the content on the Smart TV and the usage of second screens are normally not con nected or correlated to each other. 1 Overall it can be stated that the effectiveness of television advertising is decreasing and online advertising is becoming more and more important. The solution for this situation is to enhance efficiency through the integration of the second screen device into the television advertising process. Linking the second screen device to the first screen content enables addressable television. Mücke Sturm & Company identifies the opportunities of Addressable TV for all participants and points out the key success factors. Furthermore, a case study of the Addressable TV subtype called Linked Advertising with HbbTV Pairing will exemplify how it functions and provide insights on campaigns conducted. The current situation of the television market in Germany The German television advertising market shows a steady growth rate, despite the unsure and unstable economic situation all over Europe. Overall net spending for television advertisement in Germany reached about 4 billion euros in 2013 and a CAGR of 1.7% is forecast until Furthermore, the Germans kept a fairly stable level of 221 minutes of television watching per day. The television hardware in Germany consists of nearly 49 million normal television devices and 7 million internet-capable HbbTV devices deployed in 38 million TV households. 4 The usage of full HbbTV functionalities is restricted by a functioning internet connection. Actually 5.3 million addressable HbbTV devices are connected to the internet, making up a connection rate of 76%. 5 But behind the continuous rates of growth and the modern hardware structure, the German television advertising market is facing new challenges. Television is a mass media and television advertising is un directed compared to modern online advertising. Therefore television advertising success can rarely be correlated with the possible resulting consumer behavior. But television triggers the spectators emotions and people build up a relationship and commitment to broadcast content. The decreasing efficiency of traditional television advertising and the intensifying competition with online advertising requires new ways of advertising on TV to counter these trends. The solution is the integration of mobile internet devices into the TV advertising process to enable direct and targeted interaction with the customer. The current market situation makes a special situation possible which can be described as a window of opportunity for the inte gration of second screens into television-based advertising methods. Addressable TV The term Addressable TV means that consumers are precisely targeted or addressed with customized television advertisements through the integration of a internet-connection-based return channel. This direct addressing of the customer enables the advertisers to establish a direct contact with the consumers. To directly contact and interact with consumers through television, one individual return channel per television is required. Through the return channel target groups can be identified and advertisers are able to precisely place commercials and track user behavior. In this way a situation is created in which consumers and advertisers 1 Interactive Media: Catch me if you can! Grundlagenstudie zur Multi-Screen-Nutzung; Wywy White Paper: Second Screen Study; October PwC: PwC Global Entertainment and Media Outlook : TV Advertising; TNS Infratest: Digitalisierungsbericht; Mücke Sturm & Company Research; 2013 Strategic Insight Addressable TV 4/14 2

3 mutually gain benefits and enhanced efficiency. Advertisers reduce their costs for undirected advertising and con sumers reduce their time spent on advertising not personally relevant. Addressable TV is still at an early stage of its development, but already offers a large variety of new possibilities and advantages for advertisers and broadcasters but also for consumers. For advertisers: Next to the precisely segmented distribution of commercials and additional online content provision, advertisers can measure and track campaigns through the return channel with an unprecedented accuracy. These factors enable marketers to combine the measurability of online advertisements with the attraction of and the reach of mass media television. The result is real performance marketing for television-based advertisements. For broadcasters: Broadcasters can enhance the value of their commercial breaks due to precisely defined target groups with special user behavior. Therefore certain commercial breaks at defined times are more relevant to target different target groups and can therefore be sold to advertisers at higher prices. For consumers: On the consumer side, the shift of decisive parts of advertising to the second screen, as well as precisely targeted advertisements, enable an exact delivery of personalized advertisements. Only the triggering of the consumer still occurs on the television. Functioning and types of Addressable TV The functioning of Addressable TV is based on the marketers AIDA (Attention/ Interest/ Desire/ Action) principle. Classical television advertising generates attention, interest and the desire of the user. With internet-capable televisions, the (purchase) action was theo retic ally added, but with an impractical usability. Addressable TV shifts the (purchase) action towards a second screen device. There are two main reasons for why this split is advantageous. The enhanced ease of use on second screen devices for purchase processes compared to a television remote control. Second screens like smartphones, tablets and laptops are highly individualized devices and more familiar to the user than televisions, which mostly are shared devices. Types of Linked Advertising The different types of Addressable TV always follow this principle, but differ significantly in the recognition and connection of a second screen and Smart TV. The leader in the field of Addressable TV is Shazam. Shazam is an audio recognition software that was originally developed for music discovery. It is application based and works with nearly every mobile device with an integrated microphone. The Shazam application functions very simply: It listens to advertisements, identifying audio signals from cooperating campaigns. After the recognition, the user is automatically forwarded to a matching landing page on the second screen device. 6 Besides Shazam other types of Addressable TV with less importance currently could gain importance and contribute to future market potential. Social TV applications already accounted for large amounts of time being spent by consumers in recent years, especially in the United States of America, but always lacked acceptance in Germany. The integration of advertisements into Social TV applications is another way to direct consumers towards the second screen from the television. Popular services like Zeebox mainly provide an EPG and also identify audio signals (similar to Shazam) to connect with the tele vision program to enable forwarding to matching landing pages. 7 Further types are check-in-based applications like tvtag (formerly getglue). 8 Consumers check-in at TV shows with their mobile devices and are rewarded in return with exclusive gamification Mücke Sturm & Company Research Strategic Insight Addressable TV 4/14 3

4 elements. 9 Advertisements are placed television content related on the second screen as classical online banner advertising. Another type, QR-code scanning, is a less significant type of Addressable TV that is not very likely to be used for television content, but in other application fields is very common. The connection of an HbbTV with a second screen device for an advertising purpose is called Linked Advertising. Through the integration of second screen devices into television advertising processes, detailed information and purchase processes are shifted from the television to a mobile device, but are still directly linked to the television content. Key success factors In conclusion, it can be noted that television-based advertising will change irreversibly during the coming years. In order to enable the growth of Addressable TV, key success factors have to be fulfilled. Integration and commitment of the whole television advertising chain: Starting with the brands, the advertising agencies and the television stations, all parts of this supply chain need to take part. This stems from the fact that Addressable TV campaigns require a high level of coordination of all parties involved. Particularly Targeted Advertising and Linked Advertising can only unfold all of their benefits if a high level of coordination among all players is present. Standardization of advertisements and campaigns: The standardization of individual campaign modules (billing, etc.) enables marketers to generate precise measurability and reach a large spread among the advertising market. Standardized forms of advertising facilitate and simplify implementation for marketers and allow a strong focus on advertising content. A positive side effect of standardization is the gain in cost efficiency by virtue of the fact that repeated adaption efforts become unnecessary for the whole advertising chain. Infrastructure spread: The required infrastructure for Address able TV is mainly focused on the dissemination of Smartphones, or in the case of Linked Advertising with HbbTV Pairing depending on the HbbTV spread. Market penetration, therefore, is essential for the success of this Addressable TV technology. Case study Linked Advertising with HbbTV Pairing In the field of Addressable TV, Linked Advertising with HbbTV Pairing is a promising new type. The functioning of HbbTV Pairing is based on linking an HbbTV-capable Smart TV with a second screen device. Only general internet access is required for the link between the Smart TV and the second screen device. 10 To illustrate the functioning of Linked Advertising with HbbTV Pairing we will take a close look at the campaign of the German Addressable TV specialists teveo for the movie Thor The Dark Kingdom from October The campaign ran on the German TV channels of the ProSieben Sat1 group and at its core was a prize draw which was set up on a teveo landing page. The campaign was comprised of the broadcasting of a commercial for twelve times and a permanent insertion on the launch bar of the HbbTV landing page. During the commercials of this campaign, the Red Button was displayed on all connected HbbTV-capable Smart TVs in Germany. Users that pressed the Red Button were forwarded to the Thor The Dark Kingdom landing page on their Smart TV to take part in a prize draw. Besides being provided with additional content (a making of, etc.), the user was given an access code to connect the second screen (HbbTV Pairing). Entering the code and the creating a personal profile on the matching internet site are necessary to link the first and second screens. In this particular campaign nearly 10% of the users who pushed the red button overcame the media disruption from the Smart TV to the Case Study I 10 The devices do not have to be on the same WiFi nor on the same LAN Strategic Insight Addressable TV 4/14 4

5 Case Study II Campaign Key Figures second screen device. On the second screen device the submission of the final registration for the prize draw was fulfilled. Campaign Facts Further evaluation shows that the click-through-rate from the ad impressions to the landing page and the launch bar is about 1,6% for all users. This is up to eight times higher than the average % clickthrough-rate of the average online banner campaigns on other websites. The comparison of the conversion rates sorted by access time shows that users who pressed the Red Button during the commercial had a conversion rate of 18%. Users pressing the Red Button any other time had a significant lower conversion rate of only 6%. Usage Time Having a closer look at the average usage time, it is noticeable that average users who finished the prize draw spent 4.49 minutes on the whole process and nearly three minutes on the second screen. This is more than 15 times higher than the 28 seconds average duration of television commercials. 11 Devices Furthermore, the tracking of the interacting second screen devices showed that 40% of all prize draw participants still used a desktop PC or a laptop and about 60% chose a mobile device. Among the users of mobile devices, only 20% used a tablet and the large majority of 80% used a smartphone. This encourages the assumptions that the smartphone is the dominating second screen device before tablets and laptops in Germany. Despite the lack of popularity, the desktop PC on the other hand is still an important media device in German households. 12 Conclusion The end of Black Box television advertising Decreased efficiency in television advertising is a serious problem for advertisers and broadcasters. The creation of Addressable TV through the integration of mobile devices and online advertising into television advertising has the potential to reverse this trend. Getting into direct interaction with the consumer through tele vision advertising enables marketers to measure and evaluate mass media campaigns by performance. Another future positive side effect could be the improved long-term customer relationship through the establishment of precisely created consumer profiles. Click-through rates of 1,6% and conversion rates of 18% imply great market potential and high user acceptance of Addressable TV and especially Linked Advertising with HbbTV users. Summing up, it can be stated that Addressable TV with HbbTVbased Linked Advertising strongly enhances classical television advertising. Television-based performance marketing and direct contact with consumers end the era of Black Box television advertising. 11 Nielsen Media Research; statista.de; Provided by teveo interactive GmbH Strategic Insight Addressable TV 4/14 5

6 The Authors Axel Meiling Principal, Mücke Sturm & Company GmbH Axel Meiling, Principal is head of the NewTV competence Centre with 10 experienced consultants working full time in various NewTV projects. The competence centre hosts also the unique NewTV Experience Lab with showcases of more than 75 national and inter national TV services. Axel s core focus is the development of future television and video market strategies. He graduated from the Judge Business School, Uni versity of Cambridge. Before joining Mücke, Sturm & Company, he worked for Siemens and Nokia Siemens Networks in mobile communications and product portfolio management. Max Ehrhardt Consultant, Mücke Sturm & Company GmbH Max Ehrhardt, Consultant, graduated from Ludwig-Maximilians-Universität (B.Sc) in business administration and spent a semester abroad in Sweden. During his studies he focused on innovation management and digital markets. Before he joined Mücke Sturm & Company in 2012, he gained experience with various internships in different branches. Since 2014 he has been responsible for the administration of the Mücke Sturm & Company NewTV Experience Center. Mücke, Sturm & Company (MS&C) was founded by Michael Mücke and Patrick Sturm as a partner-led management consultancy in Munich, Today MS&C as a top management consultancy supports its clients with regard to all strategic, organisational and technological issues. MS&C specialises in the various aspects of digital transformation and in this field can look back on many years of experience in dealing with web-based business models. The industry orientation began in the TIME sector (Telecommunication, Internet, Media, Entertainment). For several years now MS&C has also been contributing its expertise to other sectors such as energy, automotive, commerce and health care and enabling leading companies to compete in the classic and digital economy. MS&C has offices in Munich, Darmstadt and Cologne. More information is available at Strategic Insight Addressable TV 4/14 6

7 Contact Axel Meiling Principal Theresienhöhe Munich Telephone: Telefax: Internet: Strategic Insight Addressable TV 4/14 7