What I Saw Happen -- Q2 2019

Overall -- Trust Eroding, Regulation Looming as Digital Usage Grows

• Digital ad spend continues to take share from traditional ad mediums. 2019 will mark the first time that digital finally breaks above 50% of the global ad market and it is expected to reach 61% in 2023

• Total time spent with media has stalled in the US, with declines in time spent with TV and other traditional media being offset by increases in time spent with digital media

• US consumers spend more time using their mobile devices than they do watching TV. The average U.S. adult will spend 3 hours and 43 minutes a day on mobile devices in 2019, about 10 minutes more than they spend watching TV.

• If you have a good job and are doing good work, stay where you are unless you are young and your industry is having issues

• People are also getting more concerned about time spent online, as more than a quarter of US adults say they’re “almost constantly online”

• The wealthy are finding it easier and easier to opt out commercial messages, especially when it comes to watching TV

• The Government needs a Chief Algorithm Officer (CAO) to check all the algorithms across the United States, particularly those of Google, Facebook, and Amazon

• Facebook owns awareness. Google owns intent. Amazon owns the purchase. Instagram and Google are looking to be part of the purchase as well. Purchase is probably the most important long term.

• Game of Thrones will be the last event TV show for the next few years. Avengers will be the last event movie for the next few years. Remarkable how they both happened within weeks of each other

• There will be six large self-serve digital advertising buying terminals of the future. These terminals will control 80% of digital ad dollars -- Facebook, Google DBM, Google AdWords, Google YouTube, Amazon and The Trade Desk as the only independent and TTD does not own content

• There will be many small/niche self-serve digital advertising buying terminals of the future, these terminals will control the other 20% of digital ad dollars -- Comcast, AT&T/Xander, Twitter, SNAP, Disney/Hulu, Spotify, Pinterest, Apple, Linkedin, Roku, Verizon, etc. Though Hulu could emerge as a top contender once it goes 100% self serve

• Elizabeth Warren is running a billboard in San Francisco calling for the breakup of the US big tech -- this gets interesting (see more below on breaking up big tech)

• Texting should be more prominent, works much better than email for B2B marketing and communications

• Google, Facebook, Microsoft, Apple, Amazon and Netflix, If only one can be taken away which would it be? 90% of the people I ask, say Facebook

• Another quarter of great video/TV content being created -- I don't see that ending anytime soon

• The current CEOs of the big tech companies don’t want to spin off any other assets because it will create more competition and takes away their power; eventually it will happen and it’ll be great value creation for the shareholders

• The unintended consequences of breaking up Microsoft was the emergence of Google and Facebook

• At the end of the day, whatever product or service you use, you must trust the company, if you do not trust the company, do not use the product or service

• Go SAS or go home, try to turn all revenue into SAS revenue

• Yes, the IAB did less in Q2 than in Q1, why is it still around? Same for DCN. See below how to make the IAB relevant again

• Lastly, as I always say, hire more ANALYSTS and teach them to fish not using excel. In fact, take excel away from them and move to a real BI tool

IAB -- Make it Relevant Again

• Immediately kick out Google, Facebook and Amazon

• Help all companies better compete against the digital advertising triopoly of Google, Facebook and Amazon

• Create real transparency across the industry

• Tackle fraud and name bad actors and launch a bug bounty program calling out ad fraud, to save the industry billions -- we need whistleblowers

• Kill the yearly conference

• Stop all DTC initiatives, again lack of focus

• Reduce overhead substantially, probably need like 25-30 very strong strategists in the company

• Merge the IAB with DCN

• Foster better relationships with the 4A’s and the ANA

• Publish real, de-duped #s that show how dominated by Big tech digital ads remain

• Focus on clarity and transparency in all contracts and how spend is directed and what ends up in the pockets of publishers

• Force more transparency from the walled gardens, marketers and agencies should boycott the walled gardens -- no data, no ad spend

• Keep the IAB tech lab and all it does

• Create the STORY ad as the next IAB ad standard across mobile -- last ad unit they rolled out must have been 10+ years ago

Platforms/Aggregators/Distributors -- Regulation Looming as the Big Players Continue to Grow

• Apple, now needs advertising and the revenue it can generate. Apple will go 100% old school contextual advertising and it will be big. This will be the single best way to target iOS users, the stone age strategy; lastly, can Apple pay somehow be used for attribution in this new model?

• Amazon estimated market share was just cut as eMarketer reduced its estimate for Amazon's market share of 2019 online sales in the US from 47% to 37.7%

• Facebook should have all of us 40,000 or so employees, once a quarter, spend one week reviewing content Maybe that will let everyone see the unintended cut unintended negative consequences of what’s going on the platform.

• Apple News+, do the simple math. Apple's news has 50 million subscribers at $9.99 per month. Apple's keeps 50% leaving $1.5 billion across 300 publishers, so each publisher gets approximately $5 million a year -- not much

• Facebook moving to e-commerce as most retailers sell merchandise via Instagram with secure purchase capabilities and eventual 1 click buying

• Verizon Go90 was the worst streaming service ever

• Facebook future is private, the living room not the town square

• Advertisers are starting to shift spending on search ads from Google towards Amazon

• Amazon moving into healthcare in hospitals with Alexa

• Snap reach is approximately 90% of US teens

• Log into Netflix using a kid or teenager’s login and get a whole different experience of content that is out there that the algorithm does not think you want to see

• Why aren't Verizon and AT&T using their PII for a much bigger advertising play, in a safe very privacy compliant way with simple opt in and robust transparency

• Netflix has advertising. Not traditional :30 spots but I have seen product placements for Lyft, Wayfair and GMC to name a few

• Apple's share of U.S. Smartphone market is over 45%

• Tumblr is for sale -- another horrible tech acquisition by Aol/Yahoo!/Oath

• Hulu introduced new caps on advertising on its platform, every commercial pod will be capped at 90 seconds and viewers will not see the same ad more than two times per hour and four times per day

• The majority of Netflix’s content is rented and can thus be reclaimed by its owners over time and Nearly all of Netflix’s “good” original content comes from third parties

• 40% of Americans get their news from Facebook and the majority of Americans get their news from social media

• Facebook is the engine of small business

• From Sir Martin Sorrell, $500B in advertising $300B old media $200B digital; of the $200B in digital $125B google $50B Facebook $12B Amazon -- seems a bit high but very directional

• Netflix needs a sports entry, they need to create an ESPN sportscenter competitor

• Facebook watch has 720 million monthly unique viewers, persistence pays for Facebook, making the Facebook video platform better for brand advertisers

• Has Mark Zuckerberg just pulled a Jeff Bezos, and Libra crypto could be his Amazon Web Services -- I assume next, we start to see a Google, Amazon and Apple currency to compete with Libra. Other than education and healthcare, the financial services industry most ripe for disruption.

Publishers -- Still Hard for Many, Desperate in Some Cases, Definitely Challenging

• War of attrition for publishers. Publishers need to think long term over the next 5-10 years

• As per Nielsen, broadcast C3 ratings in the first quarter dropped 17% versus last year, with all four major broadcast networks taking major hits in the coveted 18-49 demo

• Open marketplace impressions are up ~15% in Q2 though CPM’s are flat to the prior year -- STAQ benchmarking

• In Q2, 2019 the Digital Direct ad sales business is up 1% Year over year -- agaddo benchmarking, through CTV is up significantly

• Discovery aims to be the Netflix of nonfiction streaming, from food to Natural History -- sorry, it will not succeed they are too late to the market

• All Publishers should deliver direct campaigns on mobile iOS safari

• Gizmodo, bought by Spanfeller, will try package itself to be sold to J2

• Once a publisher like iheartmedia and Verizon Media says they reach 90% of all users in the US, you know they’re in trouble

• According to the CEO of Vice, less than 25% of revenue comes from digital advertising and 50% of the revenue comes from outside the United State

• In the past five years in the US market, digital ad spend on desktop has been flat -- Desktop is over focus on mobile

• Pop sugar is 70% branded sponsored content and 30% traditional display video advertising

• I was wrong. Disney+ looks great.. Set a goal of 60M to 90M subscribers by the end of fiscal year 2024 and of course it will be ad-free. Library content looks great though not sure about the original content. May make it harder for Netflix to raise prices in the future. Price point is half that Netflix also I wonder in Disney will eventually license some content to Netflix for the exposure and for the gigantic check down the road

• Why watch a show over 13 weeks on traditional TV with long commercial interruptions, just wait till it is on Netflix or Amazon or Hulu and then binge it commercial free

• Newspapers are 'toast' only the big will survive -- The New York Times , The Wall Street Journal and The Washington Post, that is.

• DotDash – did $130 million revenue last year $30 million of which was transactional

• Germany’s biggest publisher sales houses unite to fight Google, Facebook and Amazon -- The US needs to do the same

• Every Publisher, once a week, should turn off a programmatic partner and see what transpires

• Hey Mr. Publisher, go from 8 ads to 2 per page and ask for the users email address and give them a better user experience

• Disney writes off Vice investment -- no surprise

• 7 to 10% of inventory in the TV upfronts will be for addressable television

• Front door traffic is the best, email is powerful as well followed by Google search, and a distant third is Facebook.

• Game of Thrones ratings were excellent but nothing compared to the typical NFL game

• Print still having issues

• 2 Million people a day listen to the NYT daily podcast and 70% are under the age of 40

• Disney has evergreen content. Other publishers like NBC and HBO don’t, that gives Disney a huge advantage in the DTC video world

• The New York Times has 1600 journalist, at $150K per journalist is $240 million per year, about the same as Disney will spend on a Marvel movie

• The user interface is becoming more and more important

OTT/CTV/Addressable TV -- GROWING as Linear Starts to Slow

• Total US OTT revenue will grow at a 10.3% compounded annual growth rate to $23.7 billion to 2023. It was $14.5 billion in 2018, according to PwC

• Connected TV inventory is growing like weeds. Expect that more than half of the US population will watch connected TV in 2019, and because the time they spend watching will increase too, the amount of connected TV inventory available to advertisers will proliferate

• Addressable TV households in the US will be 64M in 2018, this accounts for 54% of all U.S. TV households

• Spending on non-linear TV, including Hulu, OTT and network full-episode players, is growing fast, and is expected to partly offset declines in traditional linear TV.

• Comcast sold its stake Hulu to Disney -- this will be huge for Disney as they now own the biggest OTT advertising platform

• OpenAP has been reconstituted, NBCUniversal, Fox, and Viacom unveiling version 2.0. Working with Accenture and FreeWheel on the tech side -- though may be too late

• Hulu is limiting commercial pods to 90 seconds, cutting the overall ad load by almost 50%

• OTT is all devices, not just connected tv but also mobile.

• Hulu has 82mn overall viewers, and ~70% of those viewers are on Hulu’s $5.99/no ad-supported plan -- i bet the other ~30% have a much larger Household Income

• DTC advertisers loves addressable TV

• Frequency management is a big issue with OTT

• Amazon is ramping up content and distribution plans for its free ad-supported streaming video service, IMDb TV, and is expected to launch in Europe later in 2019

Ad Tech -- Continues to Slow

Teads now at $430M in yearly revenue and now for sale at a rumored $2B price tag -- no way they get that price tag

Ad Tech is ~20 years old now, Ad Tech was ubiquitous in the world but it is now having very hard times and that will continue going forward. It was a very good run for many of us, now onto other things

Ad tech companies should be broader and morph into Mar Tech companies, if they can

Ad tech SAS platforms like Beeswax are the best

SSP’s are banks especially as agencies pay 120+

SSP’s need to keep an eye on DSP’s, need to keep an eye open for the next Sizmek

Clawbacks are bad for the business across the board

Anti ad tech bias is strong right now

I still think there is white space for many more BI tools, especially after Tableau and the Looker acquisitions

Retail -- Still all Amazon as Transformation Continues

• E-commerce is now 15 percent of retail sales. Its growth has slowed — up 12.4 percent in Q1 compared to the prior year — but still towers over growth in regular retail, which was just 2% in Q1

• Retail is in the midst of a massive transformation that’s going to change the way consumers shop and buy. In 2019, eMarketer expects total retail sales to grow 3.3% to $5.529 trillion and ecommerce sales to increase by 15.1% to $605.3 billion.

• Wayfair said it will be opening its first permanent mall store in Massachusetts

• Online grocery is a massive opportunity in the US, where online penetration of grocery is estimated at just 3%, lower than other countries like the UK and South Korea (10-15%) and well below other US retail categories like footwear (20%) and consumer electronics (40%)

• Amazon plans to start accepting cash at its Amazon Go stores after reported accusations of discrimination and elitism and new laws banning cashless stores

• Walmart will invest $11B in its stores in 2019, with plans to remodel 500 locations for expanding digital commerce and improving the supply chain

• Rent The Runway is just the closet moving into the cloud. Making rental a key part of your professional wardrobe. Went from serving the customer four days a year for special occasions to 150 for every day usage. Rent the runway is just a logistics company

• Fast fashion like Zara and H&M is really just rental business is because they will wear them once or they fall apart after two or three times

• Discount retailer Kohl’s said it will soon start accepting Amazon returns at all 1150-plus of its stores

• Alphabet’s Wing has become the first drone delivery Co to gain the FAA’s approval to make commercial deliveries in the US,

• Amazon announced that it is re-aligning its supply chain to optimize for free ONE-DAY shipping for its Prime members vs. free two-day shipping currently

• Walmart fires the latest blow in the all-out delivery war in the retail sector. Tweets One-day free shipping...without a membership fee.

• Berkshire Hathaway has been buying Amazon shares and the purchases will show up in a regulatory filing later this month Buffett said I am an idiot for not buying shares in the past

• Away is the next DTC unicorn with a $1.4B valuation

• Walmart is preparing an ad-supported streaming service with middle America as the target audience.

• Walmart accounts for close to 50% of all TVs sold in the United States -- wow!

• In an attempt for Google to compete with Amazon, Google has been adding retailers to its Express shopping (which will reportedly rebrand to Google Shopping). This program will be how the search giant attempts to beat Amazon: People will search for items on Google.com and then be able to buy them through smaller merchants while still using the platform. This also could hurt publishers with deep affiliate articles and revenue

Marketers & Agencies -- Secular Decline Continues with Very Little Real Innovation

• Magna Global predicts that digital ad sales will increase by 14% this year and represent more than half (51%) of total global ad sales ($304 billion) for the first time

• Agencies have legacy structures and legacy behaviors especially the holding companies

• I love the new breed of analytical agencies like Kepler -- definitely more room for others to follow

• Feels like agencies are always 2 to 3 years behind the ecosystem

• Accenture has acquired Droga5, a creative agency

• TACODA was targeting auto intenders 15 years ago, Facebook was targeting auto intenders from day one and Addressable TV it’s finally targeting auto intenders today -- very slow

• Programmatic is now over 80% of display advertising

• Attribution is still a mess and still too complicated with many companies taking too much credit

• Feels like we have more questions about attribution today then we did five years ago

• Brands really need a platform to make ad-supported television palatable to as many cord-cutter/cord never/Netflix natives as possible -- answer may be HULU, now owned by Disney

• Consulting houses are very good at doing gap and overlap assessments for marketers. Helps marketers with the complete marketing value chain and what makes the most sense for the brand

• The Agency is not going away, but the model is evolving on premise, training, etc

• Marketers spent more time with aggressive experiments than ever before

• Turner and other networks doing internal ratings and not using Nielsen

• The marketing spending necessary to attract each new customer is going up. That’s unsustainable because in some cases it surpasses the long-term revenue those customers will bring

• Don’t forget the customer experience, the better the experience the more likely they buy and stay longer

• Agencies continue to buy TV because it is easy and it is what they know as marketers heavily rely on video in the US to build brand awareness and capture user attention

• Facebook wants to double its global consumer ad spend within the next two to three years

TV Marketing 101 -- The End of the $70B TV Juggernaut is Near

• As a marketer, what do I do when I stop buying network TV and cable TV and go all in digital?

• Ratings continue to decline 15% per year and will not stop. I probably need to move the majority of my $'s to the following OTT platforms

• Amazon Video

• Google YouTube

• Facebook Video

• Hulu -- will be even better once they go self-serve

• Scatter -- as needed and if i can't find my audience from the above

• Live sports

• While we are at it, all broadcasters and cable TV networks (e.g., NBC, CBS, MTV, Food, ESPN, etc.) should hire a trusted third party and the recommendation should be cut the ads from 16 minutes to 4-6 minutes per hour. The trusted 3rd party is needed so there is no collusion.

• It may have all started when TBS increased the speed of Seinfeld by 9% to get extra commercial spots back in 2016 -- GREED is bad in this case.

eSports/eGaming -- Fortnite Still the Leader

• The number of interactive gamers worldwide grew 6 percent to 2.4 billion people last year

• Interactive games like Fortnite become the new social media for certain people

• The number of people who watch those games — rather than participate — is swelling, too

• On average, the male teen is dedicating ~14% of their income to video games in one form or another.

• 15% of teens said that they outright didn't play video games before "Fortnite" exploded in popularity

• Fortnite has amassed 250 million users playing the game around the world

• Comcast is opening a new arena in Jan. 2021 in downtown Philadelphia

• Drake is investing $3 million into the seed funding round for Players’ Lounge, an esports platform where gamers can play their favorite video games against others for prizes straight from their living room

• eSports/eGaming is very strong in 18 to 34 year olds

• Reddit is very strong in esports conversations

• Apple is spending hundreds of millions of dollars to secure games for its upcoming Arcade game subscription service

• National legalization of sports betting in the US will happen soon

Voice/Podcasts/Audio -- Having a Growth Spurt

• 27% of the population in the US listens to a podcast once a week

• Podcasts now represent almost 10% of everything millennials listen to. American audio listeners aged 13 to 64 spend an average of 17.2 hours per week tuning in to radio stations, streaming services, podcasts and other audio providers.

• Apple Music has passed Spotify in paid U.S. subscribers, up to at least 28 million for Spotify’s 26 million

• Amazon plans to launch an ad-supported music streaming service, the service would work through the Echo devices with a limited catalog of music.

• Many large tech companies are working on an Apple airpods competitor

• Spotify will win the long term podcast race and it will be ad supported

• Snap is in talks with record labels on expanding the ways its users can include music in posts

• Apple controls podcasts listening -- we need more competition

• Two million people a day listen to the NYT daily podcast and 70% are under 40 years of age

• Comcast plans to launch Amazon Music on Xfinity marking the first time the music streaming service will be available directly on TV through a pay-TV provider.

Break Up US Big Tech — Momentum Building

• The noise around US antitrust action against Big Tech firms has grown louder; action may take years, but the dialogue has started. Some tech firms will/should make proactive concessions

• Apple -- allow third party payments on the AppStore, reduce App store fees

• Facebook -- likely to be forced to amend privacy and data collection policies in any pending FTC settlement, untangle the three existing platforms

• Google -- abandon its Doubleclick Network business, spin off YouTube and Google Maps/Waze, etc.

• Amazon -- spin off AWS, not allowed to make white label products, pay taxes on top line revenue

• Though Big Tech are US National treasures with prominence in AI, machine learning, entertainment, infrastructure, and a vital asset for the intelligence community.

• There are definitely unintended consequences

• Derived from Arete Research -- https://www.arete.net/

So What Does This All Mean?

• More changes will happen in the advertising ecosystem in next few years than ever before; the speed of change is extraordinary

• All companies in the advertising space need to spend more time thinking about the future vs the quarterly earnings and daily recaps they typically focus on

• If you are not creating your dead! Status quo is STILL unacceptable in today's world

• There is white-space out there, just need to brainstorm, figure it out, and take some educated risks

• Be like Bezos/Amazon and plan today for 2-3 years in the future

• Be BOLD!!!!