2014 European State of the Video Industry Report

VIDEO ENTERS PROGRAMMATIC PRIMETIME IN EUROPE Pervasive adoption of private marketplaces and extension of data-driven advertising to TV shows maturation of video in Europe.

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Video continues to be front and centre for most ad buyers and sellers. That is the message from nearly 175 respondents to Adap.tv’s second annual European State of the Video Industry report.

With the advent of new data-driven practices—including the rapid adoption of private marketplaces and the growth of programmatic TV—there are new opportunities (and obstacles) that advertisers, agencies and publishers must understand in order to continue to capitalise on consumer demand for video.

This report examines in-depth the major trends in the video market over the past year and how buyers and sellers of video expect it to shift in the coming months.

Key highlights of the report include:

VIDEO AD BUYING CONTINUES TO RISE IN EUROPE.

Spending on digital video increased an average of 42 percent, according to ad buyers; a majority of ad agencies said that they’ve tapped broadcast budgets to fund their digital video buys.

PROGRAMMATIC VIDEO GETS PRIVATISED.

More video ad buyers said they buy from private marketplaces than through direct publisher deals, and private marketplace buyers will jump 25 percent next year. While private marketplace sellers will increase 81 percent in the next 12 months, publishers said direct-to-brands is still the most common way inventory is sold.

DATA-DRIVEN VIDEO BUYING IS KEY FOR AGENCIES.

90 percent of agencies use data to target video, including a sizable group—24 percent—who said they already use data-driven practices to plan and buy television. That number will rise to 38 percent in the next 12 months.

MOST AGENCY BUYERS PLAN/BUY ACROSS SCREENS.

Two-thirds of European agency video ad buyers already use programmatic in their cross-screen planning and buying, even campaigns that include mobile and linear TV. By this time next year, that total will be 86 percent.

VIEWABILITY IS THE MOST PRESSING VIDEO AD QUALITY ISSUE.

While all interrelated and requiring additional vigilance from the industry, ad buyers cite viewability as the top concern, over bot fraud and ad verification.

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VIDEO AD BUYING CONTINUES TO RISE IN EUROPE. Video ad buying is ubiquitous among agencies. All of the ad agency buyers who responded to our survey this year bought digital video ads, compared with the 86 percent who did so in 2012, and their spending increased an average of 42 percent.

Looking ahead to 2015, agencies expect their online video budgets to increase dramatically again—by an average of 33 percent.

In 2012, less than a third (29 percent) of agencies reported tapping television budgets to buy online video. In a stunning reversal, by 2014, television was named more often than any other channel as giving way. More than half of agencies (52 percent) now report raiding TV’s ad budgets for online video.

Display displacement, meanwhile, declined from 64 percent in 2012 to 48 percent in 2014. (Since display was the single largest sector tapped in 2012, this budget may already have reached stasis compared with online video.)

Validating a larger trend, this year’s shift in budget sourcing in the U.S. was markedly similar. American agencies are raiding TV budgets in almost equal measure (46 percent) as Europe, though in the U.S., display remained the most popular pocket to pick for online video spend.

A notable shift in year-to-year findings stems from where the money came from to fund this continued expansion. High demand for video ad inventory has led agencies to increasingly tap broadcast budgets.

AGENCIES: WHERE DO YOU BUY YOUR VIDEO ADVERTISING? AGENCIES: FROM WHICH CHANNELS HAVE YOU SHIFTED BUDGET TO FUND YOUR INCREASE IN VIDEO AD SPENDING?

BROADCAST TV

52%

DISPLAY

48%

PRINT

33%

CABLE

19%

INCREMENTAL

10%

SEARCH

10%

DIRECT RESPONSE

5%

OOH

0%

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FROM A DSP

76%

FROM A PRIVATE MARKETPLACE

57%

PUBLISHER DIRECT

52%

FROM AN AD NETWORK

52%

FROM AN EXCHANGE

48%

FROM AN AGENCY TRADING DESK

29%

OTHER

10%

But the similarities between the two markets don’t end there, illustrating how global the online marketplace for digital video is becoming. There was also striking synergy between U.S. and European agency practices when it comes to how video inventory is purchased.

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In Europe, and in the U.S., DSPs dominate as the place to procure online video inventory. More than three-fourths of agencies buy online video from DSPs. Programmatic buying now accounts for 57 percent of all European agency digital video ad purchases, which is greater than the 51 percent programmatic spending constitutes in the U.S. market.

Still, the publishers most likely to be at the higher end of that spectrum should take heed of the fairly dramatic shifts in buyer channel preferences. As noted in the previous chart, 76 percent of agency video ad buyers patronise DSPs; however, only 18 percent of publishers sell to them. The vast majority of publishers still sell their inventory direct to brands. There could be a shift on the horizon—more than 40 percent of publishers sell through private marketplaces today, and that number will grow to 57 percent in the coming year, according to respondents.

PROGRAMMATIC VIDEO GETS PRIVATISED. DSPs may dominate as a buying channel for European ad agencies, but private marketplaces came in a surprising second. One possible reason is rapid agency adoption, with 57 percent of respondents reporting that they are currently buying video in this type of environment. This also explains why European agencies aren’t going publisher direct with the same frequency as other programmatic channels.

Similarly, publishers are seeing a huge opportunity by selling through private marketplaces, offering them increased control and visibility over which buyers have access to their inventory. More than 40 percent operate a private marketplace today, and that number will jump to 76 percent in 2015.

(Chart below reflects projected cumulative totals.)

PUBLISHERS: HOW DO YOU SELL YOUR VIDEO ADVERTISING?

DIRECT TO BRANDS

82%

BUYERS AND SELLERS PARTICIPATING IN PRIVATE VIDEO AD MARKETPLACES CURRENTLY

AD NETWORKS

48%

AGENCY TRADING DESKS

45%

PRIVATE MARKETPLACES

42%

SSPs

33%

EXCHANGES

27%

DSPs

18%

OTHER

6%

AGENCIES BUYING FROM A PRIVATE VIDEO AD MARKETPLACE

PUBLISHERS RUNNING A PRIVATE VIDEO AD MARKETPLACE

WITHIN 12 MONTHS

57%

71%

42%

76%

Overall, just 19 percent of publishers’ total inventory is sold programmatically, although agencies say 57 percent of their purchases are programmatic, leaving ample room for improvement by sellers in automation. That said, nearly two-thirds of publishers provide access to their premium inventory via programmatic.

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Deeper examination of the kind of inventory found within private marketplaces underscores that premium inventory is now widely available through that channel. More than 70 percent of European agencies are buying from a private marketplace, and nearly 70 percent say that they’ve found premium inventory within them. With the continued adoption of the buying channel by agencies, the expectation is that publishers will make more and more of their best inventory available to them through private programmatic deals, despite the early concern from publishers that programmatic would commoditise their content. In fact, it could be that premium inventory comprises the bulk of all of agencies’ private market spending.

BUYER BEHAVIOR CORRESPONDS WITH SUPPLY

AGENCIES BUYING FROM A PRIVATE AD MARKETPLACE

AGENCIES WHO SAY THAT THEY’VE FOUND PREMIUM INVENTORY ON A PRIVATE AD MARKETPLACE

71%

67%

DATA-DRIVEN VIDEO BUYING IS KEY FOR EUROPEAN AGENCIES. When it comes to targeting, nearly all the online video buying agencies in Europe (90 percent) are applying targeting to their video advertising buys, and 89 percent of buyers use 3rd-party data. They appear to enjoy a close working relationship with their brand clients to facilitate targeting as well, as 68 percent of them use first-party data to target. Because only a quarter of agencies (26 percent) are using second-party data to target their advertising, client data sharing is more common than is sharing user data with media partners.

Having a data management platform, where personal identities could be masked, but targets could be fielded to match media buys, could facilitate this going forward. Currently, 57 percent of agencies are targeting without benefit of a data management platform. By next year, the use of DMPs will at least match the number of agencies using data to target video at 90 percent.

NEARLY ALL AGENCY VIDEO ADVERTISING IS TARGETED; DATA-SHARING RELATIONSHIPS ARE STRONGER WITH CLIENTS THAN PUBLISHERS TOTAL NUMBER OF AGENCIES USING DATA TO TARGET VIDEO

90%

USING THIRD-PARTY DATA

89%

USING SECOND-PARTY DATA

26%

USING FIRST-PARTY DATA

68%

Of agencies that buy TV as well as online video, 24 percent have made the jump to some kind of automated or data-driven process to drive traditional TV purchases, and by next year the figure will be more than a third (38 percent). Since that’s the same number of agencies who buy online video advertising, but not traditional TV, by next year it could be said that half of the agencies who buy video online will be applying their expertise to linear TV. Mastering this new digital innovation is more likely to come from digital budgets (60 percent) than traditional TV (20 percent), but 20 percent of the spending is likely to be incremental, according to agencies.

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AGENCIES BUYING ONLINE VIDEO WILL APPLY THEIR EXPERTISE TO TV BUYING BY 2015

VIEWABILITY TRUMPS BOT FRAUD AND AD VERIFICATION AMONG VIDEO AD QUALITY ISSUES. As the video market continues to grow rapidly, solutions that ensure viewability, fight ad fraud and verify the placement of ads have become central to maintaining and protecting the quality of advertising.

USING DATA OR AUTOMATION TO BUY TV BY 2015

38%

USE DATA OR AUTOMATION TO BUY TV NOW

24%

DONT BUY TRADITIONAL TV

26%

ALL BUT A FEW CROSS-MEDIA BUYS WILL BE PROGRAMMATIC BY 2015.

Two-thirds (67 percent) of European agency video ad buyers already use programmatic in their cross-screen planning and buying, even campaigns that include mobile and linear TV. By this time next year, that total will be 86 percent.

More than half of agencies (52 percent) already have brought programmatic video buying in-house, and 40 percent of the other half will within the year. Why? Most (64 percent) say it’s because it brings great efficiency to their planning, buying and reporting. 18 percent of buyers cited that in-house programmatic video buying is even more important than integrating with in-house marketing automation and CRM systems.

The large number of agencies moving to beef up their in-house DMP systems should provide a clue why this is occurring. Why integrate programmatic with a system that will be replaced in the coming year? The implication for back-end system providers should be clear: whatever their individual strength in the marketplace, they will all need to support the strong preference of buyers for buying video audiences in real-time (a.k.a. programmatic).

Among those interrelated issues, viewability trumps verification and bot fraud as concerns for the video ad marketplace, though all are top of mind for more than half of buyers (67 percent). Ad fraud leads as the topic agencies would like to know more about, but more than half of them are at least somewhat confident that technology has a solution for that issue. As high of a concern as verification seems to be (57 percent worry about it), only 38 percent of agencies are currently working with a multi-touch attribution vendor to measure cross-channel impact of their advertising, and only a small number will seek one out in the next 12 months.

AGENCIES: UNDERSTANDING THAT THEY ARE INTERRELATED, WHICH OF THE FOLLOWING VIDEO QUALITY INVENTORY ISSUES ARE YOU MOST CONCERNED ABOUT? VIEWABILITY

67%

AD VERIFICATION

57%

AD FRAUD (BOTS, AD STACKING, ETC.)

57%

Europe has long led the world in mobile media, and is staying ahead in mobile video as well as connected TV. Two thirds (67 percent) of agencies buy mobile video, and it’s the most likely component of any cross-media campaign. In keeping with our projection that demand for digital video is leading supply, just 64 percent of publishers are selling mobile video, 62 percent for smartphones and 57 percent for tablets. Similarly, while 36 percent of digital agencies include connected TV in cross-media campaigns, only 19 percent of publishers are supplying it. The inclusion of more connected TV in cross media campaigns will likely develop along with the evolution and adoption of universal IDs to target consumers across screens.

Here, publishers have the slight advantage, with 26 percent providing this capability, compared to 21 percent of agencies that have adopted this technology.

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PROGRAMMATIC VIDEO BUYING HAS FEW OBSTACLES. If there are any obstacles to programmatic video buying, they’re minor, and relegated to agency trading desks. Lack of clarity or different styles of campaign reporting (24 percent), lack of existing processes or systems or expertise (19 percent each) or hesitancy about where to allocate the budget, appear to be the primary issues standing between Euro agencies and all-programmatic buying.

One-third of sellers still fear commoditisation. One-third or fewer publishers cite barriers to the growth of programmatic in media sales, but the top barrier listed remains “perceived risk of commoditisation of content” at 33 percent, followed by “lack of expertise” at 30 percent, “lack of existing process and systems” at 27 percent and “not knowing how to integrate it into current sales channels” at 9 percent.

PUBLISHERS: WHICH DO YOU THINK ARE THE BIGGEST ADVANTAGES AND BARRIERS TO PROGRAMMATIC VIDEO ADVERTISING? AGENCIES: WHICH IS THE BIGGEST OBSTACLE TO PROGRAMMATIC VIDEO BUYING? I HAVE TO LEAVE IT TO MY TRADING DESK

24%

LACK OF EXISTING OR DIFFERENT STYLES OF CMPAIGN REPORTING

24%

LACK OF PROCESSES OR SYSTEMS

19%

LACK OF EXPERTISE

19%

NOT SURE FROM WHERE TO ALLOCATE THE BUDGET

14%

DON’T KNOW HOW TO INTEGRATE IT INTO MY CURRENT PLANNING AND BUYNG SYSTEMS 0%

ADVANTAGES ACCESS TO BUYER DEMAND

55%

FREES TEAM RESOURCES &TIME

33%

BETTER MERCHNDISING OF INVENTORY

33%

OTHER

12%

PREVENTS DATA LEEKAGE

6%

CONTENT COMMODITISATION

33%

LACK OF EXPERTISE

30%

LACK OF PROCESS/SYSTEMS

27%

DON’T KNOW HOW TO INTEGRATE WITH CURRENT SALES CHANNELS

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BARRIERS

9%

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LOOKING AHEAD: SELLERS

LOOKING AHEAD: BUYERS

One trend publishers are watching, which may help to explain why they’re more focused on content types and quality than the way video inventory is sold, is the effort by publishers to get closer to brands so they can be involved in brand content creation from the beginning, and in crafting “tighter and smarter targeting” for campaigns. This close camaraderie will also help brands and publishers better collaborate on new KPIs to replace those which both parties feel are “worn out” and no longer applicable to campaign success. There will be a higher emphasis on return on investment, but also commensurate emphasis on quality of content served with simple supply and demand metrics to determine the value of publishers to brand buyers. This in turn may generate more brand campaigns.

Ad agencies are hopeful that technology solutions will be found to solve the issues that plague their billing and reconciliation issues in this burgeoning market. One predicted: “Universal viewability tracking will shake out a lot of dodgy players, but make for a better trading environment for the good guys.”

Another predicted, “Accountability through transparency, viewability and delivered audience within programmatic and direct buys.” As a bonus for advancing technology, “I think that advanced targeting and retargeting will be in development and testing.”

Focusing on developing higher quality content will make conversations about viewability and verification obsolete because publishers will want to showcase such content to their audiences.

With the right technology, and collaboration between content producers and brands, there may be more interactivity in pre-roll video ads. Technology like VAST 3.0 and VPAID will open up more premium video to advertising, including via smart TV. One respondent predicted, “Instead of convergence of TV ads towards digital video ads, we will start to see the convergence of digital video ads towards TV ads.

(New 16:9, 4:3 digital video ad formats in order to provide compliance with TV ads can be an example for this reverse-convergence.)”

Some regional differences may take hold. In France the trend is toward shorter videos—10 seconds vs. 30 seconds. In the U.K., agencies observe, “Premium UK broadcasters [are] opening up their video inventory and first-party data to be bought on an auction model.” Most U.K. comments related to programmatic, including this prediction: “More programmatic video and holistic media buying across the entire funnel.” Cross media or “multi-screen” campaigns will drive programmatic, predicted one Dutchman.

Further, antipathy with TV came out in comments such as, “Hopefully spend will increase as money moves away from broadcast budgets.” Such sentiments were more prevalent than those that seemed to invite convergence, like: “Levels of interactivity, definitions and abilities of skippable media, emphasis on crossover with broadcast and GRP’s,” and increase “efforts to plan it together with TV.”

Programmatic trading may bring with it an effort to impose metrics from broadcast television, but these likely will be resisted. Though, with automation will come more localisation, and potentially more opportunity or localised video publishers.

Many publishers fear that current “sold out” conditions won’t persist with the influx of more inventory—especially as TV channels bring greater content online. As one publisher put it, the secret is out on video inventory profitability: “Everyone knows the demand is there, and the CPMs too. Video can only increase and take over the digital market.”

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