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TV giants like NBCUniversal and CBS are gunning for direct-to-consumer ad dollars, but challenges still hold back marketers

Business Insider | May 21, 2019, 04.30PM IST

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Zola

Zola cofounder Shan Lyn Ma.

  • TV companies that once snubbed direct-to-consumer companies for not having TV-sized budgets are now aggressively courting them.
  • The likes of NBCUniversal, Viacom, and CBS are changing how they work, building teams focused on this fast-growing sector that grew up online and is now looking to TV to keep growing.
  • But many DTC companies that are used to Facebook rates still have sticker shock from television's prices.
  • Visit Business Insider's homepage for more stories.

The TV upfronts are still for selling to big national advertisers and their agencies, but TV companies that once snubbed direct-to-consumer brands that didn't have jumbo-sized ad budgets are now chasing DTC ad dollars, too.

These DTC companies like Away and SmileDirectClub that grew up on social media selling luggage and teeth-straightening kits and have begun graduating to TV as they look for their next customers. DTC companies spent $2 billion on TV in 2018, according to the Video Advertising Bureau.

That's still a rounding error for the $70 billion TV ad business. But the number of DTC brands running ads on national TV has nearly doubled in the past two years, according to MediaRadar, and they're nibbling away at legacy brands that have long dominated the supermarket and drugstore aisles. They're even achieving unicorn status; Away was just valued at $1.4 billion. With these companies the bright spot in consumer goods, TV networks, along with the rest of the ad industry, are realizing they can't ignore them anymore.

Read more: 'The industry is killing itself': Critics say TV is stalling in its efforts to get its advertising act together

The likes of NBCUniversal, Viacom, and CBS have built teams to go after this fast-growing sector. Given that DTC companies are performance-focused and don't have TV budgets typical of big national advertisers, TV companies' pitches revolve around their data, content, and audience.

NBCUniversal is working with 150 DTC companies

NBCUniversal has a 10-person team dedicated to the category. It's created a shoppable TV product that promises a way to make a direct link from advertising to sales. It also sells advanced advertising that lets performance-focused companies pinpoint audiences that are good targets for their products. It'll also make them branded content.

In this way, NBCU is already working with 150 DTC companies and setting itself up to grow its share of DTC companies' TV ad spending in 2019, said Laura Molen, president of ad sales and partnerships at NBCU.

"We're building models to work for them; we're building content, doing audience buys," she said. "These people look at us to help build their future."

CBS: We were early in seeing the DTC opportunity

CBS for its part just created a six-person interactive ad sales team to land new DTC business, and in the past six months saw DTC ad spending soar 82%, said Dave Lawenda, EVP, digital sales and sales strategy at CBS. The interactive side pitches DTC companies on lead generation, data, and content creation, while the network side hawks its broad reach.

CBS prides itself on being early in recognizing the DTC opportunity, ahead of its rivals.

"A company like Chewy who came to us probably about two years ago saying they want to explore broadcast television - I'll be brutally honest, we said, 'Are you going to be in town?'" said Chris Simon, EVP national sales for the network. "Not everyone sat down with them. In the first six months, they didn't spend a heck of a lot of money. Now, they're spending an unbelievable amount."

Viacom's pitch: Young audience, low price points

Viacom's pitch revolves around its young audience and lower price points than traditional TV through its recent acquisitions of AwesomenessTV, VidCon, and Pluto TV. Viacom has a new business team that's largely focused on DTC companies that could have just $50,000 to spend rather than multiple millions. It also has influencer, branded content, social/digital, and experiential teams that pitch DTC companies.

"We can offer smaller marketers the opportunity to reach younger consumers through multi-touch approaches," said Karen Phillips, EVP of ad sales at Viacom. "At VidCon, we can create an event with social but at a lower price point. In some cases, they don't have a TV spot, or if they do, we can add custom content through an influencer campaign, event, or branded content through AwesomenessTV to add reach."

Sticker shock

But many DTC companies still face a steep learning curve when it comes to buying TV, even in its lower-priced digital form.

Sticker shock is a big issue for companies used to paying Facebook ad rates. One agency buyer said a Facebook CPM of $3 to $5 could face upwards of a $30 CPM for streaming TV.

"TV isn't like Facebook or Google in the sense that you can spend $1,000 and see how it does," said Arjun Kapur, head of Comcast Ventures' Accelerate, a program that helps the venture arm's DTC portfolio companies including insurance firm Hippo and wedding registrar Zola with TV advertising. "It takes a decent amount of investment. And the lead time and cost, should it not work - TV is a little bit of a fear factor. Agencies are charging up to 15% in commissions, so if it's working for you, you're starting in 15% negative because of the agency fee."

DTC, media companies speak different languages

Addressable TV is critical to serving the needs of data-driven DTC companies, and big media companies are increasingly embracing it - AT&T has Xandr, Comcast has FreeWheel, said Luke Droulez, CMO of Parachute, a DTC bedsheet company.

"That being said, we have found that the incremental cost associated with addressable TV generally is much higher than on other digital platforms like Facebook and the targeting capabilities are not yet on par," Droulez said.

A lot end up dipping a toe in TV by buying OTT, where they can spend less than old-fashioned linear TV.

Connected TV offers targeting, the ability to match campaigns to sales, a cord-cutter audience, and ability to buy programmatically, said Samantha Stockman, associate director at the agency The Media Kitchen, which has a lot of clients that are exploring or spending on TV.

"Just by highlighting the connected TV, traditional TV is showing they're data-driven as well," she said. "They can be more targeted so they can tell DTC brands they're eliminating waste. They can show foot traffic lift. They're speaking to them in digital first language."

But the inconsistency in measurement is a problem for DTC companies that have less tolerance for imprecision than old-school TV marketers do.

"DTC companies are asking a lot more questions that legacy ones aren't," Stockman said. "It's exacerbated if you're not speaking a digital-first language."

OTT's audiences and yardsticks also are different from traditional TV's, so advertisers can't just apply those campaign results to traditional TV, Kapur said.

"DTC companies are going to have to learn to speak an entirely different language," said Andrew Essex, CEO and founder of the agency Plan A. "It's two different worlds coming together. But I am optimistic."

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