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Sky… The TV audience alchemists

How much are individual TV spots worth when no-one is watching them? It’s not a trick question!

The UK TV audience measurement panel, BARB, records millions of spots as ‘zero-rated’: officially, no-one is watching them. In the traditional TV trading world, they’re worth zero. Zilch. Nada. But, in Sky’s world, they’re worth much, much more…

The BARB panel consists of just 5,300 UK homes. Sky’s digital set-top boxes sit in a far larger 9 million households. These devices quietly transmit a more significant pool of data back to the broadcaster.

This is very relevant when considering modern TV viewing. It is highly fragmented across several hundred stations. BARB clearly wasn’t designed to handle such variety back in the early 1980s. At that time the only commercial channel was ITV.

Our in-house models estimate an average viewership of 1,500 individuals for a zero-rated spot (ZRS). With more basic observation, we’ve known for many years that people are watching TV spots when BARB says they aren’t. That’s because we see ZRS drive phone calls to dedicated numbers. Web visits spike immediately after a spot has aired.

Sky, armed with their own viewing data, have also come to better understand the value of low audience spots and ZRS. It’s no surprise they’ve looked at ways to monetise previously ‘free’ TV audience viewing for advertisers. As the TV audience alchemists, Sky has found a way to turn apparently worthless TV viewing dust into viewing audience gold. This transformation has been achieved via its AdSmart product.

Upon launch in 2014, the AdSmart pitch to advertisers was its ability to laser-target TV campaigns. Reaching niche audiences and reducing wastage was now easily possible. TV targeting was apparently now more like digital media. While none of the outlined potential capabilities of the system is in dispute, the commercial driver for Sky was more about monetising previously ‘worthless’ ZRS at a time when wider audience supply and demand, and therefore revenue pressures, were increasing.

So, what is the scale of Sky’s ZRS inventory? And how much might those previously free linear spots be worth? Here are some of the facts for January-July this year…

  • 23 million total spots delivered by Sky.
  • 16 million (71%) officially classed as ZRS.
  • 4 million (28%) AdSmart spots.
  • 390 adults: the average audience for an AdSmart spot.
  • 9,870: average audience for a standard TV spot … 25 times bigger v AdSmart.

The data says…

  • Sky has a tonne of ZRS to try and monetise.
  • AdSmart is almost entirely using ZRS and very low impacting spots.
  • AdSmart still has huge growth potential based on the AdSmart-to-total-ZRS-spot ratio.

Sky’s final trading statement before its purchase by Comcast last autumn revealed annual AdSmart impressions to end of June 2018 of 3.2 billion. Continued growth since then is likely but at published levels, those impressions could be worth up to £64 million in ad revenue. This uses a conservative average of a £20 cost per thousand (CPT) for AdSmart and assumes all impressions are monetised. When considering Sky’s UK and Ireland advertising revenue was reported at £540m, AdSmart is clearly becoming a significant revenue stream for the business.

All Response Media viewpoint
AdSmart still doesn’t usually make commercial sense for the majority of brands and businesses. At least not yet. Traded CPTs are far higher than linear TV equivalents, even after accounting for audience wastage. And remember, some wastage is usually of value if targeting a relatively broader audience as most businesses do. The exceptions are very, very niche advertisers, such as Maserati, or highly localised businesses like car dealerships or regional retailers.

Yet, AdSmart is here to stay and it will only become more widespread. A further sign of this is the recent roll-out of access to the Sky Analytics platform. Advertisers and agencies can now remotely plan and report on AdSmart campaigns. Trading and negotiation are currently still done over the phone. In time though, Sky is likely to introduce a trading element to the system. Speculating on the endgame to this may be the eventual automation of trading for linear TV. But that’s still some way off.

For now, the commercial impact of AdSmart growth on existing TV advertisers is likely to be ever-decreasing access to ZRS as part of normal TV buys with Sky. Given this is effectively ‘free’ audience for advertisers, the ability to game the BARB system for a competitive advantage will diminish over time. We can only hope demand and supply for the new technologies move in a direction that drives prices downwards to more viable levels for those focussing on customer acquisition.

And what of ITV, C4 and the wider industry bodies such as BARB? If they’ve noticed Sky’s alchemy with any envy, it is likely only a matter of time before they also look to join the new broadcaster gold rush or redefine their trading models with more accurate measurement data.

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