Should Time Spent Equal Ad Spending by Media?

Queen of the Internet Mary Meeker publishes a Time Spent vs Ad Spending chart every year.

I believe that it’s a very insightful analysis and says a lot about how the industry is moving ahead.

In my opinion, three factors contribute to the gap between Time Spent and Ad Spending.

  1. Ad effectiveness: Clearly, the effectiveness of advertising is different by media. It might be different according to the type of advertiser as well. Digital media clearly took advantage of the recent ad-tech boom and significantly increased ad effectiveness via better measurement, targeting, and attribution solutions.
  2. Media owner concentration: If the number of media owners is small, they tend to control the price. Google and Facebook have much higher market shares in the digital media space than TV networks do in traditional media. I will write about this topic in my next blog post.
  3. Rapid change in time spent in recent years: Typically, ad spending changes after time spent shifts. There is some time lag, as the entire industry has to catch up to the trend. If the change in time spent happens very quickly, it creates a bigger gap between time spent and ad spending.
% of Time Spent vs. % of Ad Spending (2008-2020)

I have carried out the same analysis using eMarketer’s data. I’m not sure why the ad spending number is very different from Mary Meeker’s analysis. Based on my analysis, both TV and digital had very low ad spending back in 2008. In the last 10 years, both of them were able to reach their fair amount of ad spending. Other media outlets (e.g., newspaper, OOH, magazine) are quickly losing their shares.

If we focus just on TV, the trend looks quite interesting. Until 2015, while time spent decreased quite a bit, ad spending increased significantly. My hypothesis is that this was driven mainly by the improvement of the ad effectiveness of TV commercials. However, after 2016, the learning curve started to saturate. Ad spending decreased at the same pace as time spent. Based on this analysis, most likely TV’s ad spending % will continue to shrink at the same pace as the time spent %.

TV Time Spent vs. Ad Spending (2008-2020)

Although digital’s ad spending and time spent are pretty much the same, when we look within digital, we see a very different picture. Mobile’s ad spending % is actually much higher than time spent %. The time spent of other connected devices (e.g., Roku, Chromecast) is much higher than ad spending. Logically, mobile ad spending growth should slow down quite a bit. The ad spending of other connected devices should grow much faster. The time spent of desktop will gradually shrink to the level that matches the ad spending of desktop.

2020 Digital Media Ad spending vs Time Spent

Why is the gap for mobile so big? The peak of mobile time spent growth happened around 2013. After that, the growth rate of mobile slowed down quite a bit, though ad spending has been growing at a very high pace. In addition, mobile ads are controlled by a few tech giants that are capable of artificially increasing the price point.

Mobile Time Spent per Day and Growth Rate

Other connected devices are in the completely opposite situation. The growth of time spent has been accelerating. However, most of the brands are still only doing the pilots. Ad spending is significantly lagging behind time spent. The supply-side market is much more fragmented as well.

Other Connected Devices Time Spent per Day and Growth Rate

Based on this analysis, I predict the growth of mobile ad spent will plateau very soon.  It also gives me reason to believe the golden age of OTT/CTV is coming.

What you can measure isn’t the same thing as what you should measure

I was in London the other day for an event (pre COVID-19, now feels like it’s ages ago). Later, I had lunch with Orlando Wood at System 1, who gave a great presentation at the event. This is the link to his book: https://www.amazon.com/Lemon-advertising-brain-turned-sour/dp/0852941471

If we block the left or right side of a person’s brain, it will completely change the way this person thinks and behaves. The left brain is able to draw only a very symbolic and conceptual flower. Meanwhile, the right brain can draw the outline of the flower, but it lacks details. To be fully functional, we need both sides of the brain.

He also presented his research to show that, in the last 10 years, more creatives in our industry have been driven by the left brain (i.e., flatness and abstraction). As a result, ads are becoming less effective.

Orlando told me that one of the key symptoms of left-brain-driven thinking is that it is 100% data-driven. Everything needs to be explained by data … and data is the only source of truth.

Lots of companies are starting to offer a TV attribution solution. Traditionally, it hasn’t been very easy to understand the ROI of TV campaigns, though now it’s getting lots of traction. I do believe that TV attribution creates lots of value for marketers and that it’s better for the industry to keep measuring it. However, this doesn’t mean that TV attribution is the only thing you should measure.

I have a degree in operations research. It’s tempting to make everything data-driven. However, we are far from able to fully understand the marketing effectiveness in an accurate manner. This means that all data products available in our space provide only part of the answer. There are many important questions to which we have not found good answers, such as the long-term value of TV and other long-form content.

We cannot blindly choose what we can measure as our KPI to track. In my opinion, TV attribution cannot really measure the strength and impact of brand equity. It also doesn’t factor in the long-term effect of TV, especially around brand-building. If TV starts to use CPA as the only KPI to compare against digital media, then TV budgets will quickly shrink to zero. Brand marketers must believe in what they think is really important and continue pushing it forward, even if it cannot be fully backed by data. I know that this is not easy in this day and age. However, the strong conviction and courage to execute are key success factors in transforming the industry.

Brand Marketing vs. Performance Marketing

The battle between brand marketing and performance marketing has been going on for quite some time and there is no indication that it will end anytime soon.

To ensure that we are all on the same page, let me share my definition of both brand marketing and performance marketing. Brand marketing aims to build brand equity among its target audience. Typical KPIs are brand awareness, brand attractiveness, purchase intention, etc. Meanwhile, the goal of performance marketing is to drive certain actions among consumers. Actions can include purchasing, signing up, website visits, searching, and others.

I’d like to think that brand equity is the stock of brand value. For example, Coke, as a brand, is believed to worth $70 Bn. Every marketing initiative will increase or decrease brand equity. To drive better performance and lower CPA, I believe that a brand must achieve a certain level of brand equity. The required level of brand equity can vary based on the category or stage of a brand.

If a brand focuses only on performance marketing without building any brand, the ROI of the performance will start to saturate at some point. This phenomenon is currently taking place at many DTC brands. Initially, they gained momentum via Facebook CPA-based ads. However, to grow into mainstream players, they all started spending money on TV ads and building brick and mortar stores.

Vice versa, if a brand has a huge amount of brand equity but is not spending any money on performance marketing, it’s not fully unleashing its potentials. That’s why P&G spends a huge amount of money on in-store promotion.

Due to the strong pressure to drive ROI, more and more brands are starting to focus on performance marketing instead of brand marketing. In my opinion, this is short-sighted and will damage the long-term success of the business (of course, it’s less relevant if you have a new CMO every three years).

TV is a passive medium. As a result, it is good at building a strong brand and reaching lots of people at the same time. Most digital media offer lots of interactive experience. In addition, a brand can run hyper-targeted ads on digital media. This makes digital media perfect for performance marketing. For this reason, I think that every established brand needs to have a healthy balance between its TV and Digital budgets.

Credit Suisse predicts that, in 2030, most of the brand-building ads will still be on TV. Most of the digital ads are for calls to action.

https://plus.credit-suisse.com/rpc4/ravDocView?docid=V6BqP32AF-WErKbi

A brand marketer once told me that his brand was not growing at the pace he wanted (2-3% per year). Based on the attribution report from CPA-based digital media, the ROI of each campaign looked great, so they kept adding more of their budget to digital media. However, revenue did not grow at a faster pace. Then he started to cut the digital budget and reinvest in TV and other traditional media. He tested in two DMAs, and it worked. Then, he expanded to the entire US. As a result, the revenue grew by double digits that year without a change in the total marketing budget. In this case, the company had been under-invested in brand building. Simply by boosting brand equity to the right level, they were able to make their performance marketing much more effective.

Pressure for a Better Marketing ROI- TV Networks/OTT Platforms

As the pressure for ROI becomes more intense for CMO, it’s trickling down to media owners (e.g., TV networks, OTT platforms) as well.

First of all, brands pay for the entire ad economy. That is why, in theory, demands from the brands will eventually be accepted by every part of the media value chain (brands to agencies to media owners and all other ad-tech/mar-tech companies). Of course, there are a few exceptions.

Nielsen has been the only shop selling TV ratings for the last 30 years in the US. And its revenue doesn’t rely on brands at all. On the other hand, we have at least 500 brands participate Upfront every year and 1,000 brands spend over $10M annually on TV. Another example is that Google/Facebook own significant chunks of digital media … and they are growing faster than the rest of the open web. That is clearly one reason why they are reluctant to accept some requests from brands and why people call them “A Walled Garden”.

Unfortunately, these exceptions don’t apply to TV networks. Despite recent M&A efforts, the TV industry has much less concentration as compared to the digital industry. In addition, the TV industry has been taking a huge hit from the digital industry for years. The TV industry has no choice but to change itself.

Figure 1 US Ad Spending % (TV+Digital) – eMarketer

As we can see, ad spending on traditional TV is decreasing rapidly. More interestingly, if we look at Time Spent by TV and Digital, TV’s share was only 28%. Meanwhile, the share of Ad Spending dropped 43%. So, it’s not only that people are watching less TV. In addition, brands want to pay less $$$ per minute for TV ads. Why is that?

Because brands demand ROI but TV cannot prove ROI at all. Traditionally, GRP has been the only KPI for which TV networks are responsible. On the other hand, digital media platforms are held accountable by various metrics (e.g., viewability, CPA, CPI, % of target audience). As the pressure for ROI grows, brands have decided to shift their budgets to digital media, which can help them prove ROI.

To flight back, TV networks started to invest in OTT platforms (e.g., Hulu, HBO Max) to increase the time spent on TV sets. In addition, they have started working on new measurement and pricing metrics. The most aggressive initiative is the outcome-based guarantee, especially the sales guarantee. Since 2018, a few TV networks have decided to guarantee the sales lift when they sell TV inventory. I think it’s a great idea to measure sales lift for TV campaigns; however, it’s too risky and unfair for TV networks to guarantee sales. TV is only one of many inputs of the marketing channel, and marketing is just one of many factors to influence. Certainly, brands can ask TV networks to measure sales lift but it’s not fair to use it to hold them accountable.

In the following post, I will explore the right metrics for a TV network to use in tracking its ROI: brand marketing vs. performance marketing.

Pressure for a Better Marketing ROI- Brands

As part of my job, I meet many brands and agency executives. Everyone would agree that they face unprecedented, strong pressure to drive ROI. ROI usually means sales. Sometimes it means KPI right before sales, such as sign-ups, store visits, etc.

A CEO wants to hold the CMO accountable and ask him or her to show ROI for each marketing campaign. However, everyone knows that the sales outcome is influenced by many factors beyond marketing. So, it’s not an easy job to let the marketing team commit to ROI as its KPI. Even if the marketing team agreed to commit to it, it’s extremely challenging to hit that target constantly. That may explain why CMO turnover is the highest in the C-suite. A Forbes piece from March 2019 referenced research done by Spencer Stuart which revealed that the average CMO tenure is 44 months.

For some jobs, it’s very easy to tie performance to a specific outcome. A good example is a sales rep. If a sales rep can hit the quota, that usually means the person is a good rep. Start-Up CEO is another job whose performance is very easy to measure. Some jobs—such as Chief Culture Officer—are much harder to measure. Marketing is a tricky one because people feel that there must be a way to measure its performance. However, an accurate measurement is actually difficult to obtain.

Because the CEO continually asks the CMO about ROI, the CMO decides to come up with some BS KPIs that are easy to measure and easy to improve, at least in the short term. This doesn’t mean that it’s the right or most important KPI. (I will write another piece about this point.) This explains why there are so many ad-tech and market-tech solutions that claim they solve ROI issues for CMOs.

I completely understand that the pressure is getting stronger. However, unless sales and marketing are managed by the same person, it’s unfair for the CMO to entirely own ROI, especially because there is really no technology solution that can help brands perfectly measure ROI. As this ROI trend gains traction, it creates an unproductive effect that shifts brands’ focus away from the most important objectives, such as building a strong brand. We all know that without strong brand equity, performance marketing will not work. Yet, this is happening today at a faster pace than ever before.

In the next post, I will share how this trend impacts ad sales strategies from a media owner’s point of view.

TV/Video Landscape

1985 was an important year in TV measurement history. In that year, Arbitron/Nielsen invented People Meter (Watch this video: https://www.youtube.com/watch?v=7kdzkEP3a78) to measure TV viewership in a completely new way. I certainly agree that People Meter is a much better method than a paper diary to collect viewership information. As a result of this innovation, People-Meter-based TV ratings became the gold standard (i.e., currency) in the TV industry. Today, roughly 90 countries have adopted this system.

When we look back on the audience’s behavior in 1985, we see that 100% of TV viewership was live TV. We have to wait another 15 years for Tivo to debut its first DVR. Since then, the audience’s watching behavior has changed significantly. The pace of change has accelerated in the last five years. 

In the US, TV-Connected Devices account for 16% of the Average Time Spent per day on video. Traditional Live+Time-Shifted TV account for only 77% of this and, in fact, dropped 14% in only the last three years. Separately, about 7% of Time Spent happens on other, smaller screens such as PCs, smartphones, and tablets. (These devices account for roughly 50% of impressions.) Fragmentation is real. No one can stop it. 

The big issue is that the entire industry still relies on TV ratings to transact TV/video inventory as the currency. Based on BARB (UK’s Joint Industry Committee), the unidentified use of the TV set during prime time in the UK has increased from 3 to 87 in the last three years. The global TV/video ad market is about $200 billion. It’s hard to believe that today’s currency cannot accurately measure roughly $50-60 billion worth of ad inventory. 

The MRC (Media Rating Council), as the most important industry body, recognized this challenge three years ago and has been working hard to address it. Last September, the MRC published the Cross-Media Measurement Industry Standards for Video. It requires 

• Person-level granularity 

• Second-by-second reporting

Additionally, instead of using GRP or Impression, it proposes the use of Duration. 

In my opinion, this is the biggest paradigm shift in the media measurement space in the last 35 years. It completely changes the currency for all video ad inventory. Also, it creates unified metrics across digital video and TV. Of course, so far, MRC has not accredited any measurement company for this standard. However, I know that multiple companies, including TVision, are working hard to solve this challenge. 

As the next step, MRC is working on the standard for non-video inventory and business outcome-based attribution solutions. While measurement companies are working hard on these challenges, the gap between what people watch and what we can measure is widening. I will get into some consequences in the following posts.