Last week Comcast, the most powerful player in the US cable market, acquired Freewheel, a video ad technology business, for $320 million. Freewheel was an interesting choice of acquisition. While most of the video ad tech vendors have been focusing on programmatic, Freewheel went straight after the big money and started to address the TV industry’s online problems head on, so things like rights management and serving ads into long-form content took precedence over data management and automation. In a similar vein to Videoplaza here in Europe, Freewheel’s focus is on helping the TV industry move online, but on their own terms and in a way that complements their existing TV sales. But why has Comcast spent almost a third of a billion dollars on a move into ad tech, and what does it tell us about the direction the large multi-system operators (MSOs) are heading in?
How Does Freewheel Fit into Comcast?
First, let’s look at Comcast’s existing business. Comcast is a media and technology company with two primary businesses, Comcast Cable and NBCUniversal. Comcast Cable is the US’s largest video, Internet and phone provider to residential customers under the XFINITY brand and it also provides these services to businesses. Comcast may also soon be adding Time Warner Cable to that side of the business, assuming it’s approved by US regulators.
Then the second part, NBCUniversal, operates 30 news, entertainment and sports cable networks, the NBC and Telemundo broadcast networks, television production operations, television station groups, Universal Pictures and Universal Parks and Resorts.
While there’s scope for Freewheel to work with many of Comcast’s broadcasters, it’s equally likely the technology will be integrated into ‘thePlatform’, a whitelabel video publishing and distribution platform Comcast acquired back in 2006. Up until recently, many of thePlatforms competitors, the online video platforms (or ‘OVPs’, who provide things like hosting, streaming, players and content optimisation) have been slow to move into advertising, but Adobe’s Primetime and now Brightcove also bundle monetisation, so it’s highly likely that thePlatform were pushing for an ad tech investment to bolster their offering.
Comcast as a TV-Focused Ad Tech Player
Things become a little more interesting when we consider how a Comcast-owned Freewheel will fit into the wider industry i.e. is Comcast joining the wider ad tech race, the one that is made up of multichannel ad tech and marketing tech providers? Or is it a different, more TV-centric view of the future they’re betting on, where MSOs go it alone with proprietary tech?
As things stand, it seems the latter is more likely. While the online world has moved to a model that is increasingly dependent on a variety of technological middlemen, many of the major players in the TV industry are keen to protect their direct sales. Sometimes this is perceived as TV industry ludditism, and occasionally it is, but it’s often rooted in a well-calculated confidence in the future of the triple-play. When you ‘own the Internet’, or at least the pipes that deliver it, it puts you in a powerful position that allows you to approach the media industry differently.
And if you look at the market as it is today, you’d be forgiven for believing that TV really is different and doesn’t necessarily need to move into the programmatic world. That view would chime with the findings of a Freewheel study, published just last week, which said “Our analysis tells us that premium publishers are electing to sell the majority of their inventory directly in order to maximize profit from their scarce supply of premium content, while adhering to TV compliance requirements.”
Freewheel have a better view of what has been happening in the TV industry than most, and their research (which it’s important to note wasn’t independently verified) suggests found that resellers — which includes the programmatic players — have struggled to make any kind of meaningful inroads into the TV market:
That bar chart flies in the face of what we’re used to seeing when it comes to programmatic video, where the growth curves typically soar upwards, accompanied by growth rates in the double or even triple digit percentages. It also suggests that Comcast/Freewheel will have plenty of TV inventory to work work with in the short to medium term, during which time they can adapt to the programmatic world if need be.
However, the chart begs us to return to the question we asked earlier: when it comes to advertising, should Comcast, and indeed the other major operators and broadcasters, continue to depend on the TV industry’s current model in the hope that pay TV’s traditional strengths – quality content, huge audiences and the triple-play – will continue to serve them into the future? Or is the advertising industry now more complicated than that?
The Start of Comcast’s Ad Tech Journey?
There are several market dynamics that we believe will be pushing Comcast deeper into ad tech:
If you’re in ad tech for the long haul, you always need that little bit more.
Ad tech is a little like the European Union. That is, it always makes sense to expand and integrate just that little bit more. A bidder here. A DMP there. While the early ad tech stacks aimed to unify and streamline processes associated with media trading, data management and analytics — mainly in display, mobile and video — the remit has now widened to include search, TV, outdoor, CRM, social, email, visualisation, chat, content personalisation, content marketing, payments, m-commerce, website creation, community, tag management and offers.
And that’s just the beginning. Things become even more complicated when you look at the eclectic group of players buying their way into the market, whose core businesses include everything from ecommerce, CRM, technology, media and search, right through to social networks, advertising agencies, telcos and cable operators. So as well as being a little like the European Union, you could say ad tech is also a little like Wacky Races – think Dick Dastardly with a Belgian accent.
Whether it was their intention or not, this is the industry Comcast have joined and – in time – many of the competing solutions will enable broadcasters to monetise and optimise yield across all channels, not just video, to the point where it’s hard to envisage video-only tech vendors being around in five to ten years time. So there’s every chance that Freewheel will turn out to be the first in a long line of ad tech acquisitions.
Comcast doesn’t have any control over how buyers buy.
Many of Comcast’s ad tech competitors also have DSPs. Yes, it can be perceived a conflict of interest, but if the success of companies like Google and AOL are anything to go by, it’s something you’ll get away with often enough to make it worth your while. For now, it seems there are plenty of publishers who are willing to work with technology providers who are also media competitors, and agencies who are willing to buy technology from companies who are selling to them in one room, and trying to steal away their customers in another. Frenemy relationships are part and parcel of the industry and they’re not going anywhere soon.
Being able to influence how advertisers buy media has numerous advantages for companies with media interests. For example, you can make it easier for your customers to buy from your own ad exchanges, ad networks or by direct sales. Expanding your buy-side relationships also opens up opportunities to sell in additional services like content marketing or product placement. Plus it provides you with hugely valuable insights into how the media and advertising market is evolving, which is no small thing in an industry that moves as quickly as this one.
Spray n’ Pray’s Days are Numbered
While Freewheel’s tech is held in high regard, its primary purpose has been to bridge the gap between the TV industry and the Internet. Freewheel have never pretended to offer advanced targeting or data management options, nor have they had to. However, even the most powerful players in the TV industry will have to move in this direction as they compete with the likes of Google, Amazon, Apple, AOL and Facebook, not to mention the plethora of other programmatic players, all of whom are increasingly able to offer TV-like scale. That’s bad news for spray and pray advertising. Scale is, along with quality content, a cornerstone of the TV industry’s proposition, but in the long run those two qualities alone are unlikely to be enough withstand the assault from the tech industry’s more highly targeted alternatives.
Is Ad Tech an All or Nothing Game?
For those of us whose world revolves around digital advertising, it’s easy to forget that advertising is often an afterthought for the MSOs. Subscriber revenue is where the really big money is and – as the table below* illustrates – that’s where Comcast is seeing juicy rates of growth:
So ad tech is just a blip on the radar for a company like Comcast, who would undoubtedly survive even if every single cent of their advertising revenue dried up next week. There are very few digital competitors who can say the same, and it’s likely that Comcast knows can afford to take a chance by fighting to maintain the monetisation model is has depended on so far.
*It worth noting that a Comcast statement explained how the dip in advertising revenue was due to a decline in political advertising.