Advertising agency Omnicom, which reps large clients like McDonald's and PepsiCo, is embracing OTT and advising its clients to shift up to 25 percent of their TV advertising budgets to online video.
"We are counseling our clients to move between 10% to 25% of TV dollar to online video, depending on the target audience," Omnicom's Daryl Simm, CEO of its media operations, told The Wall Street Journal in an interview.
Because advertising budgets "have to come from somewhere," and TV is usually the largest pot to draw from, Simm said that's the area from which the agency recommends its clients pull their dollars.
Simm's comments signal a faster shift than many predicted even this spring, when upfronts, while giving more lip service than usual to online video spending, still dedicated just a fraction of the $80 billion ad market to online video advertising.
While buying more advertising in the OTT space may unnerve some broadcasters and cablecos, Simm feels it's nothing to worry about. He said that because their programming makes up a large share of available premium content online, they will get a good chunk of that money back. He also noted that online video advertising is growing at a much faster pace than other forms of media advertising.
A recent MoffettNathanson report found that online advertising (including video) grew 21 percent in the second quarter of 2014 and now makes up one-third of the total U.S. advertising market. Broadcasting fell 5 percent in the same period, while cable networks saw growth of just 4 percent. Likewise, research firm Jefferies forecast that online video advertising will see a CAGR (compound annual growth rate) of 33 percent between 2014 and 2017.
Some media companies are beginning to struggle as the TV advertising market softens. Turner Broadcasting, for example, is laying off 1,475 employees worldwide, or about 10 percent of its workforce, in the face of flagging ratings and less demand for premium advertising spots.
However, the online video segment has some large hurdles to jump before it can dream of overtaking TV advertising revenues. "There is a need for even more premium and relevant content," Simm said. "I do think we have hit the apex and we are moving into an environment where there is more talent--actors, directors, producers and brands--wanting to enter the online video space. That holds a lot of promise for online video. The amount of quality online video is still an issue."
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