Madison Avenue Tries to Pick a Winner in TV’s Streaming Wars

Madison Avenue has long been able to stuff some $70 billion annually into TV commercials. Now the advertising industry is trying to figure out how much of that money it can put down on streaming video.

Streaming will account for 60% of all video viewing in 2020, compared with 56% in 2018, and is poised to account for 70% in 2024, according to a new report from Interpublic Group’s Magna media-research unit and IPG Media Lab. The study projects that 11 million more over-the-top devices will be sold in 2020 than this year. The study suggests 2020 will serve as a moment when “streaming fully takes over linear TV as the dominant mode of video consumption for some audiences.” And it predicts consumers will quickly consolidate their trust in “a small number of brands” rather than an expanding array of new players.

That puts blue-chip advertisers like Procter & Gamble and PepsiCo in an intriguing bind. The new services have yet to embrace traditional advertising, relying instead on marketing partnerships, reduced commercial loads and new techniques like “pause ads.”  But advertisers will be pressed to reach video consumers as they migrate away from the day-and-date TV schedule that has long been their favorite home.

At Pivotal Research, analysts “expect that the weaker ratings could cause an incremental influx to connected TV/online video and broader online advertising at the expense of linear TV in 2020,” says analyst Michael Levine of Pivotal Research Group, in a research note published earlier this week.

The trouble? Not every streaming service embraces the showing of commercials. Netflix and Amazon Prime do not show ads within programming, and Hulu runs fewer commercials than many traditional TV networks. Many of the new streamers use marketing partnerships that don’t involve video ads, or sprinkle online banners and digital pop ups around their home pages. Advertisers are also trying to figure out what to gain from ad-supported venues like Pluto, the free streaming outlet owned by ViacomCBS or new methods from services like Roku; Apple’s new subscription services; and many others.

The advertising and media industries “need to take this shift to OTT more seriously. It is not an emerging change. It has emerged. And it’s maturing pretty quickly,” says Adam Simon, senior vice president and executive director, IPG Media Lab, in an interview. “The rules of engagement are different.”

The rise of Netflix and Amazon Prime has created an expectation among the younger viewers advertisers typically try to court. TV viewers already saw commercial breaks as an interruption of the entertainment they hoped to enjoy. Now they see the traditional TV model as a throwback and something to be avoided.

“The last thing the consumer wants is a repeat of the ad experience in linear television, which is overstuffed and crazily interruptive,” says Tim Hanlon, CEO of The Vertere Group, a media and advertising consultant. “The key is not to inject more commercials for their own sake,” he adds, but to come up with new methods that “offer a service or a more compelling viewing environment or defraying or subsidizing the costs that would come out of the consumer’s pocket.”

But big advertisers’ desire to align with streaming programs is palpable. Coca-Cola and Anheuser Busch InBev, two marketers whose ad work is often as popular as many TV programs, twisted themselves in knots to team up with Netflix and HBO, respectively, in 2019.

Coca-Cola went to far as to revive New Coke, the beverage debacle of the previous century, to help draw attention to a new cycle of Netflix’ “Stranger Things.” And Anheuser allowed a character from HBO’s “Game of Thrones” to kill off its ad mascot, the Bud Knight, in gruesome fashion – in a Super Bowl commercial viewed by millions of people all at once.

“As cord-cutting puts even greater pressure on linear TV ad revenues, we are starting to see non-sports TV budgets shift to ad-supported video on demand and advanced TV platforms,” says Michael Nathanson, a media analyst with MoffettNathanson, in a recent research note.” No doubt, this will increase in the coming years.”

Adding to the challenge: The streamers are not seen faring equally.

Netflix, long seen as the dominant streaming player, is now “vulnerable,” according to the report, because new competitors like Disney and WarnerMedia have more expertise in combining intellectual property with consumer goods like toys and comics. What’s more, some of the most-viewed selections on Netflix during the 2018-2019 TV season, according to Nielsen data cited by the report, were Disney-licensed selections including: “The Incredibles 2,” “Coco” and “Avengers: Infinity War.”  Those will come off of Netflix and migrate to Disney’s Disney Plus in the not too distant future.

Apple’s original content base is seen as being “quite meager for some time,” according to the report. The authors expect Apple to package its streaming product with other Apple verticals, including Apple Music and Apple Arcade over time.

The report is less sanguine about the prospects for WarnerMedia’s HBO Max and NBC Universal’s Peacock. “HBO Max’s premium strategy befits the HBO brand, but will make it difficult to attract new consumers in the face of much-less-expensive options, and HBO’s inability to be flexible with price due to their existing cable contracts,” says the study. “Peacock will be an easy option for Comcast subscribers, but may be a hard sell for cord-cutters with so many other choices on the table.”

Quibi, the short-form video start-up run by Jeffrey Katzenberg and Meg Whitman, does not get much new support from the new Interpublic study. Billed as a service that younger consumers will use to fill empty moments during commutes and waiting on line, Quibi intends to offer quick-hit videos from the likes of CBS’ “60 Minutes” and Comedy Central’s “Reno 911.” And yet, says Interpublic’s Simon, people in this demographic “use their smartphones to fill that time. Maybe they are watching video, but if they are it’s YouTube, or they are checking out social media, playing games. All these behaviors have already been ingrained.”

Even so, Quibi has built up an advertiser base. The company announced in October that it had struck early deals for $150 million in commercial inventory with marketers such as Discover, General Mills, T-Mobile and Taco Bell. Its service is slated to debut in April of 2020.

The new report expects the various media companies to create new kind of “superbundles” of content and services in an effort to lure consumers and get them to stay. A fan may come to Apple to take a peek at “The Morning Show,” but stay for Apple News, for example. Or a Disney user may stick at Disney Plus to get offers for the company’s theme parks, the report suggests: “Disney was made for an age of super bundles and has spent the last century preparing for it.”

In the end, advertisers will have to work harder to fit in this new world, says Brian Hughes, Magna’s executive vice president of audience intelligence and strategy. “They need to evolve our video presence to meet consumers where they are, and get aligned with their behaviors.”