Breaking The Cycle For Linear CPMs
Why is advertiser demand for linear so strong, when audiences are moving away?
Prior to COVID-19, audiences were shifting viewing from linear to streaming. The pandemic only accelerated this shift. So why are we seeing such massive increases in linear CPMs? The answer is grounded in the economics of supply and demand—demand has stayed strong while the supply (of inventory) has rapidly diminished.
Agencies and advertisers only need to look at the activity taking place in their own homes to know that linear TV is being replaced by streaming. It's rare that I see my two high school age sons watch anything that isn’t streaming. The same is true for the workplace (virtual as it is). Water-cooler talk is now all about streaming shows.
The strong demand for linear over streaming, among advertisers, is not in line with viewer behavior. And streaming viewing is no longer all subscription-based. Viewers are increasingly flocking to ad-supported streaming services (AVOD). If brands want to use TV for reach, they must use AVOD. Linear alone is an incomplete solution.
This is not a new phenomenon, the same buyer behavior occurred back in the late 90’s and early 2000’s with internet display advertising and physical media (Newspapers and magazines – remember them?). Consumer viewership/consumption in digital was far outpacing physical media, but the ad dollars were lagging the time spent.
If my living room and water-cooler anecdotes aren’t enough, let me shine the light on some empirical data:
According to Nielsen, CTV enabled homes currently have 93% penetration among viewers ages 18-49. Within these homes, streaming is 50.3% of time spent compared to 35.7% for linear.
Samsung’s Smart TV dataset shows that 75% of our households are “Mostly Streamers”, meaning they spend the lion’s share of their time streaming (94% of all minutes spent watching TV) and very little time with linear (6% of all their TV time).
Nearly three-quarters (72%) of all Samsung Smart TVs use AVOD apps.
Samsung Ads recently released research uncovering the fact that across most categories, like Auto and CPG, advertisers must allocate 40% of their TV budget to AVOD to effectively reach streaming homes. Without a commitment to AVOD, advertisers will drastically over-serve linear homes, and starve streaming homes for impressions.
Let’s bring this back to supply and demand.
Moving 40% of TV budgets to AVOD will break a vicious cycle for the industry causing CPM inflation. In recent years, advertisers have moved more money from scatter to upfront buys. They do this to avoid paying the massively inflated CPMs in the scatter market. Why are scatter rates inflated? It’s not that the inventory is more valuable in scatter. It’s that less inventory is available by the time scatter rolls around. And why is there less inventory? Because it was used to fill the under-delivery of the upfront deals... due to greater ratings decline than sellers forecasted. Because audiences are moving to streaming. And so it goes.
At the end of the day, it is critical for advertisers to know that if they are primarily focused on linear, they will reach audiences that only watch linear TV 2x more than their intended media goal, and will ultimately miss 81% of the “mostly streamer” audience.
Isn’t it time we re-align demand for audiences to where the supply is--in streaming?
