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What Advertisers Need to Know About Cord Cutting

“Cord cutting,” a growing trend where consumers trade traditional cable TV subscriptions for internet based viewing options, is in the news a lot lately. Just last week, two forecasts offered predictions for how the phenomenon is impacting the media and advertising businesses. eMarketer, on one hand, lowered its TV ad spending forecasts due to a “faster than expected” increase in cord cutting. The Video Advertising Bureau, on the other hand, suggests that the impact of cord cutting is overblown, given that pay TV subscriptions have remained relatively steady over the past five years. But do either of these reports tell the whole story? Here are some additional points for advertisers to consider as they assess the impact of cord cutting on their business.

Cord cutting is likely expanding the viewing audience, not shrinking it
Viewed in isolation, the growth of cord-cutting looks troubling. But amidst the doom and gloom, it’s worth looking at the bigger picture: more viewers are watching more programming using a wider variety of devices and services than ever before. In the words of Les Moonves, the powerful top executive at CBS, “[Cord cutters] are not disappearing … They’re just going to other services.” Consider the growing number of consumers returning to broadcast TV as one example. Pivotal Research Group reports a 1.7% increase in broadcast viewers in 2017 compared to the year prior. Meanwhile, the Wall Street Journal reports that sales of old-fashioned “rabbit ear” antennas (now updated to receive digital broadcast signals) will grow 7% this year to 8 million new units. This is to say nothing of the numerous digital “live TV” services that have launched in the past 12 months, including AT&T’s DirecTV Now, YouTube TV, and Hulu Live TV, which are offering consumers new ways to watch.

Cord cutting increases the measurement problem
Cord cutting leads to a shift in viewing habits that is difficult to measure with any accuracy. This creates an added challenge for advertisers who may be making buying decisions based on metrics that do not properly account for the total viewership on new digital platforms. TV networks and advertisers are still catching up with how consumers watch programming in today’s media environment. In fact, Omnicom agency Hearts & Science just released a study that shows nearly half of adults 22 to 45 years old are not watching any content on traditional TV. Reporting on the study, Ad Age says: “Instead, this 47% is consuming TV content and video on streaming platforms that didn’t exist as recently as the series premiere of CBS’s “NCIS.” That doesn’t mean they aren’t watching TV content or even that they aren’t seeing ads. They’re just consuming it in places where ad models vary, audiences are fragmented and measurement is harder.”

“We are headed toward a creative wake-up call,” Hearts & Science CEO Scott Hagedorn tells Ad Age. “If most of this content is being consumed in-app, we need to think more about the utility of advertising here.”

Cord cutting is creating new targeting opportunities
While better forms of measurement are clearly critical, it’s worth remembering that cord cutting is creating new ways for advertisers to find their target audiences, allowing them to deliver more relevant and better-performing creative to the right consumers. The growing use of Netflix, Hulu, Amazon, Apple and other streaming services has led to a fracturing of the audience. While fragmentation may have been seen as a negative in the past, in today’s environment it opens the door for advertisers to more precisely find the right audience on the right platform. One example of a programmer finding success in this fragmented, cord-cutting environment is Discovery. The network reports it has seen its ad revenue increase over the past five years, a trend executives attribute to their focus on “must-watch” programming that keeps consumers coming back for more. Discovery’s success suggests that having more targeted “niche” content might actually be a plus in today’s fragmented environment, encouraging consumers (and advertisers) to seek out great creative content no matter the platform.

We’ve reached an important juncture with cord cutting. As more viewers move their screen time away from traditional pay television, advertisers are facing significant hurdles. How should they follow these audiences online? Despite the challenges, there’s also a growing range of opportunity. Not only is it likely that more people are consuming content than ever before, there’s also a growing push to improve how audiences across screens and services are measured and targeted. This will undoubtedly give advertisers the confidence to increase their spend across streaming services in the months and years to come.