Over the last six months the market has seen a flurry of announcements of national broadcast network “opt-in” deals designed to address the emerging vMVPD space. However, these new Internet TV service models play havoc with the traditional world of broadcast TV, multichannel services, and advertising. Here are three areas of major disruption happening right now.
vMVPD’s, Networks and Local Stations
Service such as SlingTV, DirecTV Now, Hulu TV, YouTube TV, and Sony Vue are envisioned as a new class of TV service with “skinny” bundles. They are not true MVPD systems covered by the FCC rules of “must carry/retrans.” That means the vMVPD’s are not obligated to carry the 872 local ABC, NBC, Fox, and CBS stations, let alone the roughly 1200+ other local stations. The objective of these opt-in federations is not only to provide a more streamlined way for the national networks to negotiate a new type of carriage relationship on behalf of all local stations that opt-in to the program, but is also designed to build a new advertising relationship between the network and the local Stations.
There could be a big penalty if local broadcasters don’t participate in opt-in deals. The national broadcast networks are not required to carry their local station affiliates. Just this week, Fox Networks announced that it would provide Hulu a 7/24 channel called Fox LiveStream, in roughly a third (70) of its local markets where it does not have local station opt-in participation. This channel has all the national prime time programming, national news and sports of the Fox Broadcast Network, but replaces the local station content with programming from other Fox Networks.
In this new world order, the relationship between local TV stations and their network partners is undergoing a complete transformation.
The Emergence of DAI
In the world of Internet enabled TV the holy grail of TV advertising is a concept called dynamic ad insertion (DAI.) Simply put, this involves the insertion of targeted TV ads based on consumer profile into long-form linear TV. But instead of an organized, standard’s based, managed industry, the addressable TV advertising space has many competitive players, spotty inventory pools, and several competing technologies that are running headlong into each other. In other words, a good ol’ fashion case of media disruption.
Most of the addressable DAI inventory in this market comes from the roughly 4 units of MVPD inventory owned by the multichannel video program distributors (MVPDs). The largest four sellers of addressable TV ads in the US market are MVPDs: ATT Adworks, Dish/Sling TV Ad Sales, Comcast and Charter. This market is very, very hot right now and the biggest problem for buyers is the dearth of quality DAI Inventory.
National broadcast networks are measured and monetized by traditional TV ratings called C3/C7. Nielsen measures and reports live linear TV plus 3 or 7 days worth of DVR type viewing. This ad inventory cannot be used for DAI because if any of the 20-22 national ad units are replaced in a show, then the show does not count for the network C3/C7 ratings. The national rules do not constrain local station inventory, and it therefore has more flexibility to engage in DAI.
These complexities will force National TV networks, local stations, and vMVPD’s to rethink their relationships as the addressable TV market becomes real.
Smart TV DAR & MVPD Bypass
There is an entirely different approach to addressable which one technology vendor is calling dynamic ad replacement (DAR) … and what Tracy Scheppach from Matter More Media has more accurately called “operator bypass.”
In the DAR approach the ads and shows are “fingerprinted” at the time of broadcast and can be recognized in almost real time on a Smart TV set. Software running on the Smart TV can replace, enhance or overlay any ad from any version of that program from any source. This replacement bypasses the operator STB or streaming system. Hence the term Operator Bypass.
This disruptive approach to addressable ads raises a myriad of questions. For example, can the technology maintain the quality of service, and can it scale? It also raises substantial questions about carriage licensing rights and the vMVPD’s quality of service.
The most contractually vexing issue posed by DAR is whether programming networks and local stations have the right to change out ads after they have delivered a licensed product to the vMVPD’s for distribution. This is especially true in the above mentioned broadcast network opt-in deals. These deals target a tighter ad inventory relationship between the national broadcast networks and local affiliates. The rights issues raised by DAR have never before been envisioned.
As always, technology disrupts economics, and the industry has to scramble to adjust.
Buckle-up, it is going to be a wild ride!
Why it matters
Technology is forcing national and local broadcasters to reevaluate their relationship.
vMVPDs are challenging the must-carry status quo.
Dynamic ad insertion is shaking up the national and local ad inventory market.
Dynamic ad replacement may overstep the bounds of what content licensing agreements allow.
Tom Morgan, the author of this piece, is an expert on the convergence of digital TV and traditional media, especially on advertising models for DVRs, VOD and broadband TV. He is a veteran of the digital media industry with over 20 years of experience.