Over-the-top advertising has become a surprisingly important business for companies that have been stockpiling local television stations.
Early in his remarks during Tegna's first-quarter earnings call about its success as a “pure-play broadcasting company,” CEO Dave Lougee gushed about the growth of Premion.
“Premion, our first-to-market over-the-top advertising platform, has continued to evolve and expand to best serve the needs of regional and local advertisers,” Lougee said. He said Tegna was increasing its 2021 outlook for Premion, forecasting a 45% to 50% increase in revenue over 2020.
OTT advertising is more than a growing source of revenue for station groups following a COVID-caused recession from which the local ad market is still recovering. Streaming revenue is letting broadcasters, including Cox Media Group, Sinclair Broadcast Group and the NBC- and Fox-owned and operated stations, claim a foothold in the technology field and create advanced advertising products for clients enamored with digital and social media.
A Way to Offer Advanced TV Ads
“OTT is a way to get to the future,” said Steve Pruett, executive chairman of Cox Media Group, whose OTT advertising company is Gamut. “It’s a way to move advertisers and our viewers into advanced TV.”
Even more opportunities for advanced advertising will be available as local stations transition to the ATSC 3.0 NextGen TV format.
Premion and Gamut offer local clients the advantages of digital advertising, such as better targeting by geography, demographics or purchase behavior, which are difficult for broadcasters using current technology. Adding OTT and CTV advertising to a campaign can also help advertisers grow reach, a crucial aspect for marketers.
Locally targeted OTT ad spending will total $1.13 billion in 2021, per BIA Advisory Services estimates, up 19%. For 2022, BIA has forecasted another 49% jump to $1.64 billion.
On top of that, getting into the over-the-top space transforms broadcasters from old media Luddites into high-tech whizzes, which makes them more attractive to Wall Street and their investors.
Daniel Kurnos, analyst at the Benchmark Co., called Premion a big part of Tegna’s future, its OTT strategy and its ad-stack development.
“It’s also a potentially growing piece of Tegna’s own valuation,” Kurnos said. “Remember that Premion is currently all local inventory, though, so it’s differentiated. I would also argue that they did it first, so they have a nice first-mover advantage, and Gray has invested in the platform as well, which gives them nearly full-country coverage, especially once the Meredith transaction closes.” (Gray agreed to purchase Meredith’s 17 local TV stations in June.)
Tegna agreed to sell a stake in Premion to Gray Television in February 2020.
Gray president and co-CEO Pat LaPlatney said the broadcaster was looking to form a commercial relationship with Premion when it decided to invest instead.
“There’s significant demand for digital video and in doing our homework, we decided Premion was the best,” LaPlatney said.
Unlike other tech or digital businesses Gray could have invested in, Premion is generating real money.
“The business of selling digital video impressions is really, really strong,” LaPlatney said. “I would guess that it’s far and away the strongest piece of the media ecosystem right now. And so we’re happy to have a very good product set in that world and happy to have some equity in a company that we feel is the best.”
Wells Fargo media analyst Steven Cahall in May noted that Premion “supercharges” Tegna’s ad revenue growth.
Cahall estimated Premion would have sales of $215 million for 2021, including more than $50 million in the second quarter. That would be about 15% of the $1.4 billion in advertising and marketing services revenue he expects Premion to generate this year.
“We’re in a similar growth trajectory here at Gamut,” said Soo Jin Oh, president at Gamut. She expects to see more growth because many digital advertisers are starting to shift dollars into OTT.
Tom Cox has been president of Premion since early 2020, but he was one of the business development executives at Tegna when Premion was created.
“We have a variety of strategic initiatives we look at on a regular basis, and identified that dollars were moving from a variety of different buckets into OTT and streaming advertising, and realized we had some pretty unique assets given the strength of our local stations,” Cox recalled. “We started the business in 2016 and never looked back.”
Cox said the pandemic was a factor in Premion’s growth, accelerating consumers’ move to streaming by three to five years. “I believe, as TV viewers continue to suffer subscription fatigue and option overload, we should anticipate the growth in AVOD [ad-supported VOD] to continue,” he said.
Advertisers Like It
Over-the-top TV and connected TV are popular with advertisers because they combine the targeting and performance metrics available with digital advertising with the lean-back experience for viewers. Advertisers also can reach viewers who have cut the cord or simply don’t watch traditional TV.
With its head start, Premion was able to develop scale, which it has used to invest in the business.
CTV advertising commands a high price, and that has attracted fraud. Premion offers security by working directly with inventory providers rather than working through open exchanges. Among its inventory partners are Discovery, Fox and A+E Networks.
“We focused on creating an inventory product that looks very similar to a replacement for the traditional cable model,” Cox said. Premion’s product was a good fit for Tegna because, like TV advertising, the messages show up “on the same piece of glass, in the same type of programming. It’s just delivered differently.”
Between the Tegna stations and the Gray stations, Premion has “feet on the street” in markets representing about 75% of U.S. households, Cox said.
Premion has developed a set of fairly robust sales rules designed to separate the local clients pursued by Tegna and Gray station ad-sales teams from national clients looking to activate locally, targeted by Premion’s sales force.
“It took us a while to figure out how best to codify those roles,” Cox said. “But now that they are in place, it works seamlessly across the groups and the level of sales-channel conflict that we experience is considerably less than even a year and a half ago.”
Cox said Premion’s business is built around providing the best inventory, the best customer experience, by integrating with agency and client buying systems, and the best results. Those results are being quantified through deals with a number of data and analytics providers.
Premion recently signed up with TVSquared, which helps provide crossplatform, closed-loop measurement and attribution for local linear and OTT campaigns.
Tegna Attribution is working with IHS Markit to employ Polk data to identify the most valuable targets for auto advertising and connect Tegna and Premion campaign performance to dealer sales.
Tegna Attribution also has an arrangement with Arrivalist, a travel-and-tourism intelligence company, to help measure how many people arrive at various destinations, where they came from and how long they stayed.
While it works with the TV stations, Cox said, “the Premion business is focused on OTT and CTV. There are a number of other competitors in the space that offer a panoply of digital marketing services. That’s not what Premion is. Premion is entirely focused on OTT and CTV and I think that singular focus allows us to really execute and drive that business.”
Competition Will Come
But with OTT advertising growing so fast, competition is inevitable.
Apollo Management Group in April agreed to acquire Verizon Media, whose assets include both digital content and ad tech. There will be ways Verizon Media will be able to work with Cox Media Group and Gamut.
CMG’s Pruett couldn’t comment on what synergies might exist between Verizon Media and CMG, because the deal hasn’t yet cleared regulatory review and closed. “What I can tell you is that Apollo strongly encourages their portfolio companies to find synergies and to work together,” he said. “So you know that is an Apollo desire.”
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