Exclusives

By Rob Gardos, Mediamorph –

On October 27, 1994 the first banner ad appeared on the Web. By the end of the decade, Internet usage exploded, driving online advertising revenue to $1 billion. As the CTO of register.com it was amazing to be a part of this initial adoption phase. Back then, pundits cited the potential of adaptive content and advertising but the industry’s focus was primarily on making the sales engine and supply chain function. It did work – but often not well – and as a result, billions of dollars were left on the table.

Two decades later, U.S. digital ad spending represented $58.6 billion in 2015, according to eMarketer, and now programmatic and adaptive buying and selling strategies are fueling additional growth and efficiencies. “Programmatic advertising” is the practice, in which publishers use software and algorithms to dynamically sell their advertising inventory to advertisers, and the advertisers use similar software and algorithms to dynamically buy targeted advertising.

The result of programmatic advertising is more efficiency and materially higher yields. According to eMarketer, 59 percent of all U.S. digital display advertising ($15.4B) was sold programmatically in 2015, and that is expected to grow to nearly 70 percent in 2016. U.S. digital video advertising is following the same course, in which 39 percent was sold programmatically in 2015, with expected growth to 56 percent in 2016 and 65 percent in 2017.

Opportunity for digital home entertainment content: Less than a decade ago, “digital entertainment” was still considered an experiment that was barely impacting the studios’ bottom line. Today it is a substantial and growing business.

According to PwC, the U.S. digital home video market for filmed entertainment is expected to surpass box office revenue in 2017, generating $16.5 billion by 2019. On a global basis, the digital home video market for filmed entertainment is expected to grow at a similar rate, growing to more than $30 billion in 2019, according to PwC’s Global entertainment and media outlook 2015-2019.

It is evident that the deep penetration of broadband and mobile broadband, as well as the proliferation of mobile devices, is creating the large demand for digital content. Digital content created by anyone, that is consumable anywhere, on any device, is transforming the industry and fueling its growth. While this transformation has been great for consumers and is a tremendous revenue growth opportunity for the entire content industry, it has created a host of challenges for the players involved.

In order to provide digital content across different platforms, across varied business models, across evolving windows, across the globe, both content providers (studios) and video service providers (digital retailers and MVPDs) now have to deal with an increasingly complicated set of rights, licensing, pricing and promotional structures. The entire supply chain has become extremely complex, as content providers now have to supply their content and metadata to a growing set of video service providers in multiple formats on a regular basis.

Furthermore, both the content providers and the video service providers have been experimenting with different windows, pricing, promotions and metadata, supported by research and marketing. They have proven that well thought out adjustments and better “merchandising” can have a positive impact on consumption and revenue. While a lot of this is manual today, it’s just a matter of time that pricing, promotion and merchandising of content becomes adaptive to the demand and context.

Programmatic content

We define “programmatic content” as the practice in which content providers will use software and algorithms to dynamically provide compelling offers for their digital content to video service providers, and the video service providers will use similar software and algorithms to leverage these offers and promote them to end-consumers.

While the digital content market is growing, one of the main limiting factors is that the information flow between content providers and video service providers is manual and disjointed. Standards and mechanisms are evolving, which will ultimately allow for a fluid interaction and information exchange between the parties.

As these mechanisms take shape and the digital supply chain becomes more automated, adaptive storefronts for video service providers will also emerge. They will dynamically obtain information from the content provider and use it to merchandise compelling offerings and a superior experience for the end-consumer.

This will be the world of “programmatic content” – a world where content providers and video service providers will be connected and be able to exchange information dynamically; where offers and bundles will be created based on algorithms that not only take into account buying behavior, but also content rights and economic terms; where top tier content and/or shelf space will be bid on or automatically allocated based on dynamic rules and intelligence; where metadata profiles will adjust to maximize conversion and thereby revenue.

While bigger players, like Netflix, have embraced these concepts for years, widespread adoption will drive further disruption and growth in the industry. These concepts have driven the monetization of the Web for years – the next big move will be programmatic content. The content providers and video service providers who embrace this will win.

How do we get there?

There are three areas that need to come together more aggressively.

Automated digital supply chain – The industry needs to truly automate the supply chain from content creator to video service provider to consumer. This includes a full feedback loop where assets and metadata, as well as information on rights and pricing, flows freely between all parties.

Automated merchandising – Dramatically improved merchandising systems for both the content creator and video service provider will present consumers more flexible and targeted offerings while also focusing on maximizing revenue and profits.

Data, Data and Data – Dynamic data exchange is a key aspect to driving these supply chain efficiencies and intelligence from start to end. The more systems can communicate and exchange information in real-time, the better the opportunity to produce an effective overall supply chain, as well as underlying data for better decision-making.

Where are we on the path?

There have been many recent improvements made to managing digital assets as the industry consolidates around standards like the Entertainment Merchants Association (EMA) Media Manifest and File Manifest and EIDR identifiers. Video service providers are supporting these efforts with high-performance digital transport networks, allowing data to move more quickly. This is a foundational building block that must continue to evolve.

From a commercial perspective, most of the digital supply chain (economics, rights, etc.) is still primarily manual. Critical components of the digital supply chain are managed in isolation, as pricing and avails processes do not integrate with licensing and contract management systems. While there has been some positive momentum in this area with the evolving EMA Avails standard, the reality is that this process is still dominated by spreadsheets and manual processes.

This results in inefficiencies, errors and high costs from service bureaus.

Automated merchandising and dynamic pricing are fairly uncommon beyond a select set of players. This translates to monies being left on the table by both sides of the equation – content providers and video service providers. As the supply chain becomes more automated and intelligent, we expect heavy investment in this area as the return on investment is validated.

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