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Why did AOL spend $400 million on a programmatic video advertising company?

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Video advertising, AOL, Advertising, Broadcast


Why did AOL spend $400 million on a programmatic video advertising company?

AOL just spent $405 million on programmatic video advertising firm Adap.TV, the biggest purchase of Tim Armstrong's tenture as AOL CEO.

Sure, AOL buys a lot of things. But this deal matters because it sums up two of the most important trends shaping the media economy right now: programmatic advertising and online video

Going by pure financials, Adap.TV is an appealing prospect, having doubled revenue in each of the last three years. But AOL paying five times the company's 2012 revenues is down to its ability to make selling video advertising inventory programmatically easier.
Whoever cracks this puzzle of monetising video ads in real-time at scale, as TV adspend growth stalls and eventually declines, will become very rich and potentially help generate revenue for savvy publishers along the way.

As Tim Armstrong put it in his statement on the deal: 

Two trends are prevalent in the video space right now – the movement from linear television to online video and the shift from manual transactions to programmatic media buyingAdap.tv is positioned squarely in front of the huge opportunity these trends are presenting.

The beginning of TV's decline and online's gain?

The shift from linear TV to online video has been overstated but there are signs it's finally starting to happen.

TV's share of adspend in Latin America, ASEAN (East Asia) and Africa is still going up. But in larger markets of Western Europe, Asia and North America, as well as Central and Eastern Europe and North Asia, it's levellling off and is set to decline, according to recent stats from Group M.

TV share of total ad spend (Group M)

Globally the drop is expected to be small - just 0.2 percentage points between 2013 and 2014 - but the direction of travel is clear. 

TV to programmatic video?

TV advertising's loss is the internet's gain, but exactly what kind of online publisher will benefit is far from clear.
Group M's This Year Next Year report singles out Malaysia as a market where TV advertisers are switching budgets to online pre-roll ads, but in more mature territories the effects are more subtle. Despite expectations, video advertising hasn't taken signficant share other forms of online ads in recent years.
But the evidence suggests programmatic trading - which hasn't caught on as quickly in video as it has in display - has the potential to change that. Programmatic video advertising is growing at a phenomenal rate.  
In April, Emarketer (using figures from Forrester) showed that total US video adspend on real-time bidding (RTB) exchanges would grow 71 percent this year, and 66 percent to hit $1.14 billion in 2014. Emarketer's conclusion is that RTB will give online video a significant boost as impressions continue to grow:
emarketer-rtb-video-ad-impressions-png.PNG
So AOL has bought a company that enhances its ability to take advantage of the channel with the highest potential growth rate and the advertising technology (programmatic) with the most potential to grow.
Whether the effects on prices for publishers will be diminished because of further effectiveness and competition through video RTB - mostly traded on a direct basis today - remains to be seen. But there's no doubting the direction in which the market is travelling.

video, programmatic, adap, europe, asia, media, revenue, television, advertising

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