A year after launching Spot On, NBC’s one-stop shop for regional and local CTV and OTT advertising, the service’s top executive says buyers have started taking a more holistic view of their campaigns with streaming becoming an increasingly important part of the mix.
Shawn Makhijani, SVP of NBC Spot On and SVP, business development and strategy for NBCUniversal Owned Television Stations, says with about 28% CAGR, local OTT is barreling toward a $1.2 billion industry this year. And that isn’t just money shifting from linear TV into digital, but digital dollars being clawed back from the likes of Google and Facebook.
The reason? “TV is still considered the most premium video buy in digital,” Makhijani says.
In an interview with TVNewsCheck Editor Michael Depp, Makhijani says local advertisers are drawing largely from TV’s traditional categories that are wising up to OTT’s potential and want more data-driven campaigns. And panning out more widely to TV advertising, he says NBC is ready to embrace Nielsen’s inclusion of broadband-only homes to its local market samples and thinks automated advertising is still years away, despite more readiness for it across the ecosystem.
An edited transcript.
Spot On is reaching its first anniversary after a year of generally record audience growth on streaming across the media ecosystem. What was your own growth, viewership-wise, on both linear and streaming platforms?
COVID has been an interesting time. With so many people spending more time at home, viewing saw an initial huge spike both on linear television and OTT. The big issue that came up was around lack of new content as we got deeper into COVID. But local news has seen a resurgence. More audiences are turning to it, and we have connected to a younger generation. Everything from vaccinations to testing are very local in nature.
In general, digital viewing on NBCUniversal is up 30% year-over-year across categories. News, because of COVID and the elections, is up 143%. Sports is up 37%. Hispanic is up 47%, and entertainment up 30%. Entertainment is a bit off just because the core dramas got delayed. Reality content has come in to fill in some of the holes, and it tends not to do as well, streaming-wise.
Where is the advertiser demand coming from?
It is probably in the categories you would expect locally. These include political, auto, travel (when it comes back from COVID), health care, packaged food. I’ll add the core local customer that has a strong relationship with our local sales team. It could be a regional furniture shop — traditional TV advertisers that have said they are seeing the market change. They want to tap into the OTT audience or want a data-driven campaign.
So you’re not getting out-of-the-blue new categories here. You are getting traditional broadcast advertisers who have seen opportunities arising in streaming.
There are certain categories or subsets like health care. Hospitals might have advertised with us locally, but certain types of insurance might not have. Or travel: Some airlines had a local strategy, others just thought it was more cost efficient to do it nationally. In the OTT space, we are playing everywhere.
The big driver of that has been the fiefdoms that exist within agencies. The change that happened a year or two ago is agencies started saying the TV buy now has to be holistic. So much TV viewing has moved to OTT, and they are watching it on the TV. Why are we calling TV viewing through OTT digital, but TV viewing that comes through your cable company or an antenna as TV? Ads that come between long-form content got shifted in many agencies to the local teams, the TV teams, and what this allowed for is a holistic approach of planning the campaign. It opened all of these dollars to come back into TV, and that has been a big boon for us.
Agencies have been traditionally siloed. The TV buyers are on one floor, the digital buyers on another. Is that structure eroding?
On the national side, you are still seeing digital OTT being handled by the digital teams and the TV teams are handling traditional TV. In local, the premise has been the local buyer understands the market and has the access to all the different outlets. They can build a scaled campaign locally and manage it holistically to make sure the TV and digital reach is all working simultaneously. In digital in the local space, midroll has come back to TV buyers, but interestingly, pre-roll hasn’t. National OTT buys are increasingly mixed with a pre-roll buy.
The national example is different than local just because of the nature of the types of orders. A local OTT buy is managed line item by line item. A client might place a 50-DMA order. Many times, they want 50 invoices, 50 creatives, 50 last-minute changes that are different in each market. Then we have to take the data layers they want and manage delivery market by market.
With a national campaign, they are managing the delivery across the country. The Southeast could underdeliver relative to their population and no one complains. Locally, in the political season, we literally had 100 market campaigns with several layers of data targeting live. We underdelivered in Montana, and it was as big as if we would have underdelivered in New York. That is normally not what you see nationally.
Can you quantify how much advertiser demand is rising?
The local OTT space has been growing at like a 28% CAGR recently. This is only local OTT. In 2021, we are estimating $1.2 billion in local OTT. What is that demand? Is it linear money moving? It is a bit of a mixture with an important caveat. Number one, it is linear money going over. The rule of thumb is you want to get 20% of your local TV campaign to be OTT. A lot of clients are in the 10%-20% range already.
What is also happening is digital money is coming back into TV. The big bleed happened from TV to the Googles and Facebooks of the world. We are now able to claw that back, and the reason is TV is still considered the most premium video buy in digital. In this era of fraud and brand safety and all the issues that digital has seen, TV has become the holy grail of digital video. Advertisers and consumers don’t draw a distinction between traditional linear TV and watching it on OTT. The market is embracing it, and that has been great for our business.
That said, in terms of the linear migrating over to the digital, is of that predicated on the pandemic and viewing behaviors? Might that trend slow down or reverse after the pandemic?
Some of the viewing might come back, but it is definitely accelerated. Even though there are these shifts, the TV viewing that is remaining — the live events, the tent poles, the key dramas and comedies — their CPMs continue to rise because in a holistically-planned media buy, you still need that anchor of TV because you need to reach that audience. The shift to OTT is actually not as negative as the shift to digital was 15 years ago.
Nielsen will add broadband-only homes to its local ratings audience sample in the next few months. Broadcasters anticipate in some cases significant ratings declines and they feel the methodology isn’t ready for the market. Media buyers seem perfectly happy to negotiate on the lower ratings. How are you navigating this change?
We have been a big proponent of the shift to include broadband-only homes. Our CRO, Frank Comerford, wanted to move to an impression-based buy for quite some time, and broadband-only homes helps accelerate it. What they are bringing to the table is an impressions increase even though ratings went down. The reason ratings are going down is the universe of available households goes up because cord cutters are included. The reason impressions go up, even though ratings go down, is because when you take it to that bigger sample, you get a smaller rating. There are more people are being measured who are actually watching our content.
We have been working with Nielsen to ensure everything is included the way we want it. You will see ratings decline anywhere from 1% to 15%, but impressions go up 1% to 40%. There are certain clients who want to have their cake and eat it too, and continue to transact on GRPs. The bulk of us in the market are saying we have to move to an impressions base.
How big of an opportunity do you think we will see in 2021-22 in terms of audience impressions? What does that represent opportunity-wise for you?
If impressions go up 10%-40% like we are seeing, it could cause revenue to go up 10%. There is going to be a lag as we figure out the methodology.
How much of your business now is addressable?
It depends on how you describe addressable. I define addressable now to include behavioral-targeted OTT campaigns. The bulk of our money still comes from TV. OTT is getting to … call it 10% of the overall, but within that, 90% of our multimarket deals now have behavioral target product, not just geo. It is looking at it holistically, taking the mass reach of TV and combining it with behavioral.
What I think will end up happening is addressable is going to be 20%-40% of the overall spend. The pool of inventory that is addressable is going to keep on increasing. ATSC 3.0 will add OTA viewing to the addressable pool. We are going to see that transformation happen over the next couple of years.
What have you learned in the past year about addressability in terms of inventory control and dynamic ad insertion?
Ninety percent of our multimarket deals are behavioral targeted, [but] it turns out that is very different than what national buyers are seeing. National buyers aren’t anywhere close to that level of behavioral targeting. This has been one area where local and regional buys have led and national is just ramping up.
The big learning is how important scale is. Building this ecosystem is a partnership. Even when we aggregate inventory like NBC Spot On has done, where we have access to all of NBCUniversal, tons of third party and 1 billion average monthly uniques, scale is still an issue when you start to target in smaller cities. Advertisers need to be more open to how we target in these local environments, and that is where the partnership comes in.
What percentage of your business is in performance campaigns now?
I would say it is under 5%. There is nothing wrong with performance campaigns, and I am actually a big fan of them. The reason they have been low for us is just our sell-out rates. So much of our Spot On deals are bundled in with NBCUniversal campaigns, and we sell everything we have. We don’t have a lot of extra inventory that we can place in performance. If I shift to linear, we love performance. Our multicast business is driven off of that, but on the OTT space [with] the most premium inventory, it has been tough to really get them in.
Do you have to work harder on those campaigns?
Yes, and if there is any layering on it, it just takes the margin away. It is great for excess inventory. In the local, regional space, we are managing so many complex campaigns that adding a performance layer on it when you don’t have a lot of excess inventory makes it difficult. Performance is much easier to place on a national level because they do have that extra inventory and they are not tied to an individual market delivery.
Recently we presented a webinar forecast for 2021 on spot TV during which the broadcasters on the panel predicted it would be two more years before sales automation becomes part of the transaction process. Does two years sound right to you?
I think it is going to be four years. I would love it to be two years. I am taking your question to be that end state where we have seamless automation between digital and TV with integration with the agencies. That holy grail keeps on getting pushed out just because we are finding it hard to bring everything together.
The big change that have happened in the last year is much more readiness for some of the key players on the technology side to be open to APIs, where sharing can happen and not wanting to control the full ecosystem. Everyone wants to build the walled garden, but walled gardens never work. Can we actually then build a system that does the end to end? We are on it, I know our other big station groups are on it, vendors are on it. Realistically, I think it is at least four years, though.
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