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UK broadcasters target big tech's stronghold in advertising showdown

U.K. broadcasters in the country are harnessing big tech's targeted advertising methods to win over Google LLC and Facebook Inc.'s biggest advertising base: small and medium-sized enterprises.

Leading commercial broadcasters ITV PLC, Channel 4 TV, and pay TV provider Sky Ltd. are investing in technology that uses demographic and location data to customize ads to the point where individual households watching the same program see different content.

Tools range from Sky's in-house AdSmart platform — touted as a "self-serve portal for local businesses and SME advertisers" — to Channel 4's pairing of ads to relevant moments in live TV. ITV has said ads on its video-on-demand service ITV HUB will be increasingly targeted and that it will offer end-to-end ad campaign planning, management and analytics to help attract "a wider range of advertisers."

These efforts are expected to pay off and attract smaller businesses traditionally turned off by the scale and larger budgets associated with TV advertising, industry experts said.

Data-driven ads offer a better return on investment as they typically see a greater response rate — which is what initially drew smaller companies to online advertising. A lower entry price is also available to SMEs based on the size of their target audience, according to Doug Conely, chief product officer at video ad tech firm Peach.

Both online and TV advertising relies on the same underlying innovations, Conely said, such as granular targeting tied to geography, lower costs per ad, and self-service tools that see clients upload their ad campaigns, and increasingly, their customer data.

Broadcasters are also trying to differentiate their ads offering from big tech's. They are marketing TV as a safer place for brands to advertise than search or social media platforms. Facebook, for instance, has come under fire for privacy breaches and the spread of misinformation. And Google is appealing a March antitrust ruling by the European Commission that saw it fined $1.7 billion for restricting search ads from its competitors.

When Channel 4 announced its "Dynamic TV" platform for VOD ad targeting in January, CEO Alex Mahon cited Google and Facebook as ad revenue competitors but said the broadcaster is a "trusted" brand in an era of "fake news."

ITV claims its upgraded ad tech exports features previously available on "large social platforms" to a "brand safe environment." Sky, meanwhile, has directly cited Google Analytics as an inspiration for its AdSmart tool, while also touting TV's benefits over scandal-prone digital platforms such as YouTube and Facebook.

But the starkest disparity between the broadcasters and big tech is reflected in their ad revenues. The industry's ad tech investments are playing out amid a backdrop of flat TV advertising spend, with Enders Analysis forecasting a drop of 5% from the flat £5.11 billion spent on TV last year courtesy of Brexit, with further declines if the U.K. departs Europe without a deal.

Ad spend is widely expected to drop significantly following Brexit as the market as whole is viewed as particularly susceptible to loss of confidence in growth, Ampere Analysis Research Director for media research and strategy Richard Broughton said. Not only do businesses view it as an easy cost to cut, he said, but it is also vulnerable to consumer cut-backs on spending in a shrinking economy resulting in a blow to advertising's effectiveness.

The three broadcasters have also seen their respective ad revenue decline: Sky parent Comcast Corp. said advertising on the pay TV provider fell by 5.6% year over year to $563 million in its second quarter; ITV's half-year ad revenue fell 5% to £849 million due to "economic and political uncertainty" and Channel 4's TV advertising intake decreased by £7 million in 2018 to £791 million.

By contrast, big tech continues to make ad gains driven by SMEs, though Enders said it could also be impacted by sluggish consumer spend and marketing spend cuts in the event of a no-deal Brexit. Facebook generated $16.62 billion in revenue from advertising in the second quarter of 2019, up 28% year-over-year, and Google netted $32.60 billion in ad revenue, a jump of about 16% over the same period last year.

Overall, 57% of the U.K.'s total ad spend in 2018 was online, with a record 41% of SME advertisers fueling the market’s growth, according to a report by U.K. advertising think tank Credos in partnership with Enders Analysis.

Ad targeting represents TV's best attempt yet at a "fightback" and SMEs are proving crucial to its success, Adam Thomas, lead analyst for global TV markets at Ovum said. Leading the charge is Sky's AdSmart service, according to Broughton.

Along with Channel 4, Sky is a venerable veteran in the ad-targeting market. Since its launch in 2014, AdSmart has racked up 17,000 ad campaigns, with 70% of advertisers completely new to TV – the majority of which are SMEs, David Sanderson, head of AdSmart local and development at Sky Media, told S&P Global Market Intelligence.

While Sky has seen its total ad revenue dip, its AdSmart business grew by 30% last year. In July, its pay TV rival Virgin Media began using AdSmart, helping the ad service to reach 40% of U.K. households and around 30 million individuals.

In the wake of its launch in Germany and Italy, and increased integration with fellow Comcast unit NBCUniversal LLC's ad tech, Thomas expects it to carve out an even bigger share of the market. Others will also be looking to replicate its success, he said.

With 5.7 million SMEs in the U.K. with a combined annual turnover of £2.0 trillion, Conely believes there is still plenty of untapped ad revenue for TV. Smaller businesses could also help mitigate the impact of a sustained, post-Brexit advertising downturn in the long term, he added.

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