Untitled - Amazon AWS

Table of Contents 01

BARRICADED DATA

09

MOBILE STABILITY

03

INVENTORY INSUFFICIENCY

11

STATIONARY OUTDOOR

05

ALTERNATIVE SUPPLY

13

CONTENT COMMODITIZATION

07

MUDDLED OTT

15

REALITY BITES

BARRICADED DATA Big data dream is unattainable

T he data wall in China is higher than ever . With digital spending concentrating on BAT assets and hero apps, big publishers have become even more dominant. Publishers are building advertising products within their ecosystem and release minimal data to third parties and advertisers. It is not only BAT who are taking this stance, even hero apps like Toutiao are keeping their data walled.

T he dream of using single source tracking to optimize buys and understand consumer journeys is yet to be realized. Tracking vendors like Miaozhen and Admaster have been talking about single source panels for a long time, and Miaozhen has tentatively promised a single source product in 2018. But there are reasons why single source panels do not yet exist and are unlikely to exist in the near future: the cost required to build and maintain a panel is extremely high, and data has been difficult to verify or correspond to other databases.

1

I t is not all dire. With rich first-hand data and technological advancements,

brands are able to build their DMP (data management platform). But due to the lack of 3rd party date, it is unlikely to help understand user journeys or optimize their digital buying. Smaller clients are better off using PDB (programmatic direct buy) to ensure good inventory, better targeting and brand safety.

2

INVENTORY INSUFFICIENCY A seller’s market of video advertising

A dvertisers looking to use video to reach their audiences will face significant challenges to secure inventory on TV and OTV this year.

I nventory shortages are due to a maelstrom of issues: supply dramatically decreasing while demand from advertisers remaining high. Ratings decline in local TV (LTV) have eliminated a source of supply—LTV spending share of top 10 advertisers has dropped from 19% to 15% in the past three years. Even national TV (CCTV) and top provincial satellite (PSTV) channels are suffering from a sharp decrease in ratings. To build reach, brands are fighting for prime time inventory on CCTV/PSTV, exacerbating the situation from the demand side.

B rands are mitigating the dwindling TV video supply by moving to OTV.

Many advertisers still expect OTV to offset the prohibitively priced inventory on TV, but it is no longer the case in high demand tier 1 and 2 markets. There are chronic inventory shortages in Beijing, Shanghai, Chongqing, Tianjin, Nanjing, and Xi’an. This issue is intensified as many brands choose only to buy from BAT video sites, though other video sites have available inventory.

3

Rating

TOTAL TV RATING FROM 2015-2017 (PRIME TIME)

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ADVERTISING CLUTTER No. of ads watched per day per person 47 34

30

11

25

19

20

Jan

Feb Mar Apr May Jun

2015

Jul

2016

Aug Sep Oct Nov Dec

2017

TV

OTV 2013

2017

To

satisfy growing demand, video sites have increased pre-roll durations, from 60 seconds to 90 seconds on hot programs. OTV advertising clutter has risen by 72% in the past four years.This increased clutter has given viewers added incentive to buy memberships to skip over advertising. With 40%+ of viewers on BAT video sites subscribing to memberships, OTV inventory is even more scarce.

I t will continue to be a seller’s market for online video inventory and prime time TV inventory.

To build reach in the coming year, brands need to compete aggressively on the price or diversify their buying strategies beyond hot programs and prime time. Data source: ADP, iresearch 2013-2017, Total TV rating is based on All people 4+

4

ALTERNATIVE SUPPLY More options for video adver tising

To offset inventory shortages, brands are turning to more platforms for video advertising and looking for innovative ways to advertise. I n the next 12 months, video advertising investment will increase on non-OTV mobile apps like Toutiao, UC browser, Baidu news, and Weibo. These mobile apps are providing video advertising options like 5-second open page video ads in addition to in feed video or branded viral video ads. Together these apps provide another way to reach audiences: Toutiao itself has 232 million monthly active users. 5

Tracking

vendors are also catching up by including these video formats in mix reach calculations. One substantial challenge for brands is that consumers can easily skip in feed videos; impressions are being counted one second into videos play. However, with negotiations, publishers can count impressions after four seconds of play.

On

the big screen, more brands will step into the OTT territory. Opening ads and video pre-rolls are the most common formats advertisers buy. In the past year, we have seen steady growth in OTT pre-roll advertising.

A lthough these innovations will not drive consistent mass reach for advertisers for now, brands should nevertheless test these formats to see if they drive incremental reach. formats.

6

MUDDLED OTT

Fragmentation brings confusion

O TT

( Over-the-top ) spending grew by 160% in 2017, showing the potential of OTT as a video media to backfill TV and OTV shortages. However, the Chinese OTT landscape is still very fragmented. There are multitudes of stakeholders involved in OTT, including TV hardware manufacturers, OTT video applications, content providers, broadcast license holders, OTT operation platforms, and OTT ad agencies.

OTT AD SPENDING BY FORMAT Million RMB

3

2500 2000 1500 1000 500 0

370 480

520

2016

2017

Opening Ad

7

Data source: Nielsen 2018 China family screen industry development white book

1750

2

Pre-roll

Other

A s a result, we are very far away from the optimal OTT buying process. Monthly inventory supply is not stable. Vendors are checking with different TV manufacturers to get the previous months’ TV open rate to guess next months’ inventory. The OTT landscape still and will remain the wild west for the next 12 months.

O TT tracking involves much guesswork as well. Though Miaozhen and Admaster have launched OTT tracking as part of their multi-screen product, the tracking data has yet to be validated by the market.

Video Applications

Content Providers

Broadcast License Holders

Operation Platforms

With more smart TVs replacing traditional TVs, inventory will stabilize by 2020. Brands should understand the environment and try to find the best buying method available to them, then test on a small scale before treating it as a core part of media plan.

Ad Agencies

Hardware Manufacturers

8

MOBILE STABILITY

Volatile mobile landscape stabilizes The volatile mobile app landscape is finally stabilizing. In most categories,

the top app list has not changed since the second half of 2017. Fewer hero apps have entered the market, as entry barriers are very high. Not only do new apps have to pay to develop, brand and release their app, but gaining new users with fierce competition becomes very difficult.

videos, livestreaming, paid music and paid knowledge will still experience changes and ad spending growth in the coming year. In the livestreaming category, the top app list is still volatile, with big players fighting for traffic. But in the online video category where consolidation has happened, traffic of top 5 video apps accounts for 95.7% of all video traffic.

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2017.12

2017.11

2017.10

2017.9

2017.8

2017.7

2017.6

2017.5

2017.4

2017.3

2017.2

2016.12

2017.1

2016.11

2016.10

2016.9

2016.8

2016.7

2016.6

2016.5

2016.4

2016.3

2016.2

This is not true for all mobile app categories: short

2016.1

LIVESTREAMING APP RANKINGS 1 2 3 4 5 6 7 8 9 10

YY LIVE

映客直播

直播吧

熊猫TV

新浪体育

龙珠直播

NOW

火山小视频

来疯直播

斗鱼

腾讯体育

齐齐互动视频 咸蛋家

虎牙直播 一直播

花椒直播

美图秀秀

美颜相机

Camera360

天天P图

PS平板版

Faceu 激萌

美妆相机

水印相机

2017.12

2017.10

2017.11

2017.9

2017.8

2017.7

2017.6

in

潮自拍

玩图

2017.5

2017.4

2017.3

2017.2

2017.1

2016.12

2016.11

2016.10

2016.9

2016.8

2016.7

2016.6

2016.5

2016.4

1 2 3 4 5 6 7 8 9 10

2016.3

consolidation, brands can now build long term relationships with the hero apps by concentrating their spending, tapping into better inventory and creative executions via partnerships. Investment on long tail apps will decrease even further in 2018.

2016.2

W ith

2016.1

PHOTO APP RANKINGS

时光相册

腾讯相册管家

Data source: Yiguan 2016-2017

爱奇艺

腾讯视频

优酷

乐视视频

咪咕视频

风行视频

芒果tv 天翼视频

搜狐视频 超级视频

2017.12

2017.11

2017.10

2017.9

2017.8

2017.7

2017.6

2017.5

2017.4

2017.3

2017.2

2017.1

2016.12

2016.11

2016.10

2016.9

2016.8

2016.7

2016.6

2016.5

2016.4

1 2 3 4 5 6 7 8 9 10

2016.3

of the concentration of spending, brands are more likely to choose PDB (Programmatic Direct Buying) as the buying model rather than RTB (Real Time Bidding), allowing them to get guaranteed quality inventory at a pre-agreed price on hero apps.

2016.2

B ecause

2016.1

VIDEO APP RANKINGS

PPTV聚力 电影天堂

10

STATIONARY OUTDOOR

OOH innovation on a mass scale is still far away I nnovative technology on OOH—both format and tracking, continues to be implemented on a small scale because of high costs, lower profitability, and government regulations. Currently, brands rely on online amplification of a single OOH creative to create bigger impact amongst a wider audience. Since regulations on creative OOH are particularly strict and cost prohibitive in top-tier cities, brands can implement their wild creative OOH ideas in a second tier city, and amplify on social media and mass media later. This strategy allows for cost savings and exposure in multiple regions.

11

Programmatic OOH networks on a mass scale have not progressed. There is little incentive for outdoor vendors to invest in mass OOH programmatic. They are reluctant to bring absolute transparency to the market in fear of revenue reductions if impressions tracked are lower than expected. Most brands accept this as part of buying outdoor media, and thus the status quo remains. Brands will still have to rely on the old method of pre and post surveys to measure outdoor effectiveness.

There can be no denying OOH is impactful, especially for categories like luxury, automobile, and online apps. The challenge and benefit of OOH has always been its impact amongst a targeted but small audience. With the combination of OOH and social, brands are extending this effect outwards. What is yet to be seen is whether the same impact of the physical experience of creative OOH can be replicated through its social amplification.

12

CONTENT COMMODITIZATION Streamlined process of content creation

The rise of content economy means production of content has become more plentiful and economical than ever. Content creation has become factory produced in a streamlined process. Branded content, especially non-video versions are so commoditized that it has inundated the market.

The

increase of key opinion leaders (KOLs) in the market has changed the way marketers work with them. Instead of working with individual KOLs, brands now are working with Multi-Channel Networks (MCNs) which are KOL management groups. As lifespans of popular KOLs are getting shorter, brands cannot rely on long-term relationships with a single KOL. Partnering with a group ensures they can cooperate with a continuous group of popular KOLs and benefit from the relationship with MCNs.

13

A similar phenomenon is happening on E-commerce platforms. Brands can now work with agencies who employ hundreds of copywriters churning out thousands of articles for product recommendations. Brands only pay when those content pieces get featured on Taobao or other e-commerce platforms. With little thought going into these articles, these may soon be created by AI bots.

Differentiating by content quality rather than quantity becomes more important than ever. brands should cooperate with renowned production houses for their strong content innovation capability, sophisticated execution skills, and operational certainty. This will ensure the branded content stands out in the age of commoditization.

14

REALITY BITES

Clients need to face competitive reality M ultinational companies need to face the reality that the media environment today is more competitive than ever. They are no longer in a dominant position in the market.

W With TV ratings dropping, brands need to buy more spots to achieve the same GRPs, leading to higher CPRPs. The ratings downturn also means more GRPs are required to achieve the same reach. Thus, TV is getting more costly despite the ratings decline.

15

In

a seller’s market, OTV publishers release better inventory to whoever is willing to pay more. With higher budgets, local clients can afford both OTV program sponsorships and CPM regular buys. They are not so concerned about high CPMs.

On

the other hand, MNC clients often demand zero or negative inflation for inventory based on CPM/CPRP buys. Thus, they miss out on premium inventory, some of which only available to the program sponsors. Often when faced with this situation, clients choose instead to press on with their current strategy and savings goals which result in reduced reach and a weakened presence in the market.

F acing this reality, brands have to either pay higher prices for premium inventory or reduce their buying criteria to meet their reach and awareness goals, so as to ensure sales growth.

16

CONTRIBUTORS

Irene An

Airwave Account Director

17

Parker Huang

Executive Content Director, Fuse

Tommy Li

Kassy Peng

Investment and Trading Associate Digital Managing Director, Negotiation Director, OMG OMG

Raymond Wang Head of OMG Programmatic

Owen Wei

Head of Tactical Planning TV Buying, OMD

Tony Xi

OOH General Manager, OMG

CONTACT US FOR MOR INFORMATION

Bhasker . Jaiswal @ omd.com Jeanette.Phang @ omd.com Rachel.Fan @ omd.com

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