Predictions about the future of TV abound — and with good reason. The average American spends early one-third of their waking hours watching TV, roughly five times more than all social media activity combined.
Since leading media platforms operating at the scale and complexity of full economies (compare Comcast’s revenue to Guatemala’s GDP), it’s worth examining the TV advertising business through the lens of macroeconomic growth models, which economists use to understand why nations are rich or poor.
The most famous growth model, the Solow model, named after Nobel Prize-winning economist Robert Solow, says an economy’s output is determined by a combination of its population size, education level, stock of physical capital and quality of ideas.
One of the model’s lessons is that while population growth and capital investment do help economies grow, only ideas and higher education levels will sustainably drive wealth creation and improved living standards. And, since it's easier to copy good ideas than discover new ones, the model predicts that poorer economies will catch up to richer economies by adapting and adopting their best ideas. This explains how Germany, Japan and South Korea grew so quickly after wars, and how China has boomed over the last 40 years.
So, what lessons does this approach have for the media and advertising business?
TV advertising platforms have a massive catch-up growth opportunity, if they can successfully adapt and adopt the best ideas from today's advertising platform leaders, namely Facebook.
With that in mind, here are four of Facebook's best ideas, that TV platforms can adapt and adopt to realize their catch-up growth potential.
Personalized Experience: Facebook drives outstanding engagement — and supports precision ad targeting — by personalizing its service for every user. Having recently digitized their infrastructure, TV platforms can do the same. Netflix and Hulu already ask, “Who’s watching?” which supports individual user profiles, powers make better content recommendations and opens the possibility of personalized advertising. To catch up with Facebook, all TV platforms should do the same. Of course this raises privacy concerns, but that's the beauty of catch-up growth — TV executives can study Facebook’s successes and failures, and should be able to copy their best ideas while avoiding their mistakes.
Tangible Conversions. Facebook’s advertising products deliver tangible business outcomes, including online purchases, lead form completions, newsletter signups, store visits and more. TV platforms, by contrast, mostly sell brand awareness. To catch up, TV platforms should consider developing direct-response ad products that allows viewers to take concrete actions using their remote control or a companion mobile app. You can vote on The Voice using the Comcast X1 remote, so why not allow viewers to sign up for an advertiser’s email list, claim a special discount offer or even “shop now/order now” in the same way?
Algorithmic Optimization. With a personalized experience and concrete conversion events, TV platforms can leverage the advances in artificial intelligence and machine learning that Facebook, Google and other tech companies have made in recent years. Sure, it took an army of data science PhDs to develop these techniques, but you can adapt and adopt the best ideas by hiring just a handful of experienced engineers. Over time, with user profiles as a guide and conversion events as a goal, TV platforms’ algorithms will begin to show the right ads to the right people at the right time — just like Facebook’s does — ultimately increasing both viewer satisfaction with ads and advertiser ROI.
Self-Serve Ad Buying. Facebook has worked tirelessly to eliminate all barriers to entry — you can get started for just a few bucks, pay with your credit card and even use Facebook’s simple DIY video maker if needed — and they’ve scaled their advertiser base to 6 million-plus clients. In contrast, cable companies like Comcast and Charter Communications still sell primarily through distributed sales teams and each has only about 40,000 advertisers nationwide. To catch up, TV platforms must also eliminate barriers to entry by creating self-serve ad platforms that offer local ad campaigns for $1,000 or less and, because lack of creative is the No. 1 barrier to entry, help new advertisers produce commercials that will work for TV.
Facebook’s game-changing ad platform was built on these four pillars. Personalization supports precision ad targeting, which together with conversion measurement, powers algorithmic optimization, which in turn delivers provable ROI for advertisers. Self-serve access makes it easy for advertisers to experiment with the platform and, with good results, increase budgets. Once that virtuous cycle was in place, Facebook was able to scale its advertiser base almost automatically and continuously steal budget from TV, even as it has increased ad prices quarter after quarter. Now, TV platforms have the chance to do the same, and win a good chunk of that budget back.
Importantly, while it won't be easy for TV platforms to tackle all four of these challenges at once, all four are necessary to create the self-reinforcing dynamic that Facebook has enjoyed. Without personalization, it will be hard to measure conversions accurately and impossible to optimize. Without optimization, attracting the millions of small advertisers that are currently using Facebook will be challenging. And without many advertisers competing for attention, the inputs for personalization and optimization will be limited.
To TV executives who may be reluctant to explicitly copy Facebook, I would say two things: first, don't feel bad — Facebook does it all the time — and second, this strategy is not designed to merely achieve parity with Facebook, it’s really about letting TV's core strength shine through.
Advertisers have come to expect the targeting, ROI and convenience that Facebook offers, but still dream of seeing themselves on the big screen — whether on Monday Night Football, March Madness or The Bachelor — all incredible placements for which Facebook has no answer. Above all, that’s why adapting and adopting Facebook's best ad tech ideas is a winning formula for TV.
Nathan Labenz is CEO of Waymark, a Detroit-based video advertising company.