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Many brands are overlooking a major opportunity to increase their ad revenue: connected TV.

While research from eMarketer shows that this medium has already taken up residence in more than half of American households and is expected to be in 60 percent by 2019, connected TV remains a forgotten screen among many marketers and media buyers. Yet brands that learn how to effectively incorporate connected TV into their advertising campaign strategies stand to achieve significant competitive advantages.

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A few weeks ago, I got an email from stand-up comedian Louis CK announcing his new show Horace and Pete, available on his website for $5. Not on Netflix or FX or even YouTube but his website. I’ll let that sink in a little.

Now, why would one of the top-earning comedians whose show has a stellar cast (Alan Alda, Steve Buscemi, Edie Falco and Jessica Lange) take this route? Here’s why - Five years ago, Louis sold his Live at the Beacon Theater special direct to customers from his website and raked in a sweet $1million in just 12 days. Since then, he has continued to deal directly with his fans, eliminating the middleman and seen an upward trend in earnings. On his site, you’ll find shows and often tickets to his live shows  as well, sans the much dreaded Ticketmaster fee.

There’s a lot we can learn about doing business in a digital world from Louis CK:

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TV programmers like Viacom and AMC are in the same position that print companies like The New York Times and Conde Nast were ten years ago. As consumers moved to reading content online, the legacy publishing companies figured they could replicate their business on a new channel. No one could believe that a tech company with no real content could compete for brand advertising budgets. We all know how that played out.

Now, consumers are cutting the cord and moving to digital channels to watch TV. There is more to lose on both the buy and sell side during this time around. TV advertising is considered by advertisers to be the holy grail of inventory, and they don’t want to lose it any more than the TV companies do. However, the siren song of audiences at scale and with technical ease could change their minds.

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Every ad that runs on a site serves different goals. The advertiser’s goal is to generate sales; the publisher’s goal is to generate revenue. But most often overlooked is the goal of the user.

The assumption, unfortunately, is that most every time you run an ad, you’re going to bother the user. There are rare exceptions to this - occasions in which you’ve delivered the right ad to the right person at the right time, the user engages and ultimately clicks through. But that happens only six out of every 10000 times the ad is served – and that’s a generous estimate.

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If 2015 was the year the industry started to talk about programmatic TV, we think 2016 will be the year the industry starts to really adopt programmatic TV.

In 2015 we saw leading demand side providers announce multi-screen programmatic solutions that included linear TV. While some of those announcements came as early as first quarter, the first volume of programmatic TV orders started to surface in early fourth quarter. As a result, orders from digital demand side providers accounted for a very small percentage of programmatic orders in 2015 but set the stage for 2016.

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FCC Chairman Tom Wheeler is circulating a proposal that would “tear down anti-competitive barriers and pave the way for software, devices and other innovative solutions to compete with the set-top boxes that a majority of consumers must lease today.” The proposal is up for vote on February 18.
 
According to the FCC, the set-top box (STB) business costs consumers $20B per year. The intent of the proposal is to open the market to competition, giving consumers the option to buy STBs from third-parties, presumably at a lower price.
 
But we’ve seen this movie before – a few times, actually. Previous FCC mandates following similar proposals has resulted in the cable industry implementing CableCard, OpenCable (OCAP) and, most recently, Tru2Way. In all of these cases, the so-called solutions fell short in one way or another as the status quo prevailed.  This begs the question: can a new FCC-mandated approach be successful or does this movie have the same old ending? Let’s take a deeper look at what the FCC actually wants to accomplish, the proposed solutions and new approaches that could make this time different.

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The numbers used to analyze the video ad market can be cut in many different ways.
 
According to the IAB, video ad spend on desktop totalled US$2.0 billion, or 7% of digital ad spend, in the first half of 2015. The peak body also listed mobile video spend, a figure of less than US$300 million for the period, in its H1-15 Internet Advertising Revenue Report.
 
Yet we know more than this is being spent on digital video. The IAB’s report doesn’t capture ads sold in over-the-top (OTT) TV content, programming which can be delivered via desktops as well as a range of other connected devices. Data from The Diffusion Group in April forecasts ad revenue from OTT TV will reach US$8.4 billion in 2015, a number well below broadcast TV’s expected $60 billion haul.

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With the escalating importance of video advertising, we’ve been carefully examining the overall video landscape and its evolution. In my conversations and early analysis, I’ve seen that at least 50% of all video inventory on the market today is served in-banner. These ads, also called display video ads, are served independently of a video player, almost exclusively without video content to follow. In other words, a pre-roll without the “roll”. No doubt you’ve seen in-banner video ads on many of your favorite sites; they come in many shapes and sizes, but they run with limited incentive for users to watch to completion.

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