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The Next Step in the Evolution of TV: Localizing National Ads

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With online streaming, the way we watch -- and the way networks work -- is changing. Companies like Dynamix are stepping in with digital rendering software to sustain the ad-based TV ecosystem.

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With the growth of online video streaming, the standard model for network television is at risk. Revenue streams are threatened by the loss of retransmission fees that cable and satellite companies like Time Warner Cable (NYSE:TWC) and DIRECTV (NASDAQ:DTV) pay in exchange for the rights to broadcast network channels, as well as by the loss of local ad sales.

Traditionally, one of the major ways the network TV ecosystem has sustained itself has been through ad sales by local affiliates to local companies. Now, with more live streaming apps for computer and mobile devices taking hold, and many more sure to come, the local middleman is being cut out of the picture. Rumors have been circulating around the possible launch of an app called ABC Watch, which would, if brought to market, stream all of ABC's (NYSE:DIS) programming onto mobile devices.

Imagine that ABC Watch catches on and we see similar apps come to market by competitors NBC (NASDAQ:CMCSA), Fox (NASDAQ:NWSA), and CBS (NYSE:CBS). It would be inefficient and costly for the networks to generate unique local ads for the 125 top media markets in the US, doing the job that local affiliates normally do. How will networks take in local ad revenue if consumers everywhere subscribe to the same online stream and watch only national ads? Making hundreds of different versions of one ad to sell to local markets would be highly inefficient for the networks. Digital video companies like New York-based Dynamix are developing a solution.

Created in 2010 by online video advertising veterans, Dyanmix uses rendering technology that allows advertisers to insert local information into digital video ads. And it doesn't just superimpose a Flash ad over a video as many other ad agencies already do -- Dynamix actually uses rendering technology to incorporate local information into national ads, allowing for one advertisement to have any number of unique versions for the top media markets and beyond.

In the corner of a national ad, there might be an address, a special discount, or some other personalizing and localizing touch that is meant to engage the potential consumer on a more intimate level. Eventually, such features would even allow ad agencies to change details within each unique video by, for example, changing the color of a character's shirt to appeal to different markets, with a person wearing black in New York and a Hawaiian shirt in Miami.

Not only do companies like Dynamix address the needs of a changing industry, but they are capitalizing on it as well. The online advertising industry is a $7.6 billion marketplace. Although the majority of ad revenue still comes from traditional TV advertising, many advertisers are realizing they can lower cost per thousand views (CPM) and raise return on investment (ROI) by utilizing localization and personalization software.

Minyanville spoke with two members of the Dynamix team -- Jamie Goin, the Vice President of Business Development, and Jack Cohen Martin, the COO and Co-Founder -- to learn more about the technology and the implications for the TV ad ecosystem.

Dynamix localizes national ads, making several versions of one ad with different local details and offers.
To provide some context for Dynamix's approach to localization, Jamie Goin described the state of digital advertising, explaining that the company's in-advertisement messaging is only one of three required ingredients needed to create effective localized ads. Also vital, but not handled by the company, is the use of big data for sophisticated audience targeting, and the use of real time bidding platforms for distribution. These elements together -- dynamic messaging, data, and distribution -- allow for advertisers to "reach a specific consumer on a video level, intelligently," as Goin told us. Dynamix partners with video technology platforms BrightRoll, Adap.tv, and AdRise to make this happen.

Speaking to the market potential for growth in localized, personalized advertisement, he said, "The majority of online video advertising is dominated by brand advertisers. As video CPMs continue to drop, we will start to see more direct response-oriented advertisers increase spending on video. Direct response advertisers will demand sophisticated targeting options to justify the investment. Consumer habits and options available to advertisers over the last five years have changed dramatically. 'TV Everywhere' is quickly becoming a reality."

Companies like Dynamix, including competitors Innovid and Eyeview, will capitalize on increases in direct response ad spending as interactive ads become less popular. As Goin said, "Advertisers are starting to realize that video is much more of a passive experience. Interactivity will recede and you'll see more personalization of online video."

The standard, decades-old Hollywood television system is unlikely to change too drastically. Studios and networks will continue to produce high production value content that relies upon advertisements for revenue. However, the new medium of online streaming -- and particularly mobile streaming -- is already shaking things up.

Follow me on Twitter: @JoshWolonick and @Minyanville

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No positions in stocks mentioned.
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