TV Ad Dollars Slowly Shifting to Web Video

TV Ad Dollars Slowly Shifting to Web Video
Increasing Portion of Broadcast and Cable Budgets Follow Younger Audience Online

Updated May 12, 2014 5:31 p.m. ET

Online video outlets are finally starting to chip away at television's hold on advertisers.

Several major advertisers, including MasterCard, MA,  Mondelez International MDLZ and Verizon Wireless in the past year have moved a portion of the money they previously spent on television to online outlets, conscious that viewers are more frequently watching video online, ad executives say. And with online outlets in recent weeks unveiling plans to ramp up their programming, more shifts are likely, say media buyers.

Money for online video is "definitely coming out of TV," said Ben Jankowski, head of global media for MasterCard Inc., which shifted a small portion of its TV budget to online last year and will move more money this year.

Starcom MediaVest, a big ad-buying firm, said it shifted more than $500 million out of TV over the past 12 months, three quarters of which went to online outlets. The agency, which is owned by Publicis Groupe SA PUB.FR said it is planning a bigger shift during this year's "upfront" ad sales negotiations with major TV networks, which kicked off Monday.

"For us, it's really about shifting to where audiences are" said Laura Desmond, chief executive of Starcom MediaVest, which buys roughly $40 billion in ad time and space annually on behalf of marketers such as Procter & Gamble Co. PG and Honda Motor Co. "More and more people are spending time with other channels beyond the broadcast and cable networks," she added.

While companies have been putting money into online video ads for years, few talked about moving TV ad dollars there. Rather, it usually came from their print and display ad budgets. But video content has been improving and audience measurement has improved, the two things have made marketers more comfortable with moving TV dollars, said ad buyers.

Nearly 88 million people watched online video on a daily basis in March, according to comScore, up 14% on a year earlier. While the time viewers spend watching traditional TV continues to grow, according to Nielsen, many of the major cable and broadcast networks have seen sharp ratings declines in the past couple of years.

At stake is the giant pot of money spent by advertisers. Television pulled in $66.35 billion last year, according to eMarketer, accounting for 38.8% of total U.S. ad spending.

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Digital media drew about 25% of total ad dollars. EMarketer predicts television will remain bigger than digital until 2018, by which time TV's share of total ad spending will slip to 36.1% and digital—including not just online video but all website ads and mobile ads—will reach 36.4%.

Online outlets, such as Google Inc. GOOGL's YouTube, Yahoo Inc., YHOO, AOL Inc. AOL and Microsoft Corp.'s MSFT Xbox, are trying hard to speed up that shift. These companies have been ramping up efforts to lure some of television's ad dollars, holding their own "upfront"-like programming presentations for advertisers, called the NewFronts.

How much these outlets can draw from TV budgets in the near term will be determined partly by this spring's upfront ad sales negotiations. On Monday, 21st Century Fox's Fox network and Comcast Corp.'s CMCSA NBC network launched a week of star-studded presentations of coming new programs.

NBC said it plans to use the hits "The Voice" and "The Blacklist" as building blocks for its prime-time lineup, which will feature edgy new dramas, such as the comic-book themed "Constantine," as well as a handful of female-oriented comedies like "Unbreakable Kimmy Schmidt," created by Tina Fey.

Ad buyers and Wall Street are expecting the upfront market to be lackluster. J.P. Morgan said in a note to investors last month that spending commitments for broadcast networks could decline between 2% and 3% while advertising commitments to cable networks could increase roughly 5%.

Wall Street analysts say online video isn't likely to take a big chunk out of TV commitments this year but it could have an impact. The threat of online video "could be used to hold down the price increase the networks get, but that will be very modest," said John Janedis, an analyst with Jefferies LLC.

Marketers say major TV networks continue to be more appealing because of their ability to draw mass audiences. The Super Bowl, for instance, can draw as many as 100 million viewers.

Still, ad executives are conscious that television can't meet all their needs. In particular, younger consumers are gravitating to online. According to Nielsen, 30% of online video users are age 18 to 34. By comparison, 21% of TV viewers are 18-34.

"Younger consumers are consuming less TV as a portion of their total media consumption," said Laura Henderson, associate director of communications planning and media at Mondelez, maker of Oreo cookies and Trident gum. The company said it plans to shift 10% of its global TV ad spending into online video by the end of this year, following a double-digit percentage shift in the U.S. last year.

Mondelez is pushing into online video to find "lighter TV viewers," Ms. Henderson added.

MasterCard's Mr. Jankowski says declining broadcast-TV ratings over the past few years were a factor in the credit-card firm's shifting a low- to mid-single digit percentage of its overall TV budget in the U.S. to online video channels such as YouTube and Microsoft last year. He said MasterCard is likely to boost that by a few more percentage points this year. Another factor was that online allows advertisers to target viewers more precisely.

MasterCard spent $81.8 million on TV ads in 2013, according to Kantar Media, an ad-tracking firm owned by WPP WPP.LN  PLC. The company declined to provide exact spending figures.

Meanwhile, Verizon Wireless, a unit of Verizon Communications Inc., VZ a shifted more than 10% of its TV dollars to online video last year with the majority of the dollars going to online ad portals and online video ad exchanges, according to a person familiar with the matter.

Analysts and marketers say advertisers are feeling more comfortable with moving TV dollars as Nielsen and others have begun to be able to offer better measurement of how their TV ads compare with the performance of online video digital ads. Still, the measurement is far from perfect and mobile video consumption is still hard to figure out.

Late last year, Google reversed course and allowed Nielsen to place measurement tags on ads running on YouTube. That agreement "allowed the creek to flow," said Brian Weiser, an analyst with Pivotal Research Group.

Still, Mr. Weiser said it isn't a flood of money, adding that advertisers are holding back moving bigger chunks of their TV budget because of a lack of premium content online.

"Programmers are taking baby steps with investing in content," added Mr. Weiser. "If they spend more, they will get more."

Write to Suzanne Vranica at


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