LUMApresentsourannualStateofDigitalMedia,whichcoversourviewsonthemarket,theindustrytrendsandthefutureoftheecosystem.Wehopeyouenjoyit.

Meet the Senior LUMA TeamTerence Kawaja Brian Andersen Mark Greenbaum Dick Filippini Conor McKenna Gayle Meyers

Founder & CEO Partner Partner Partner Vice President CMO

Terry leads strategy,banking and content for LUMA.

He’s also head comedy writer and performer.

Brian is LUMA’s marketing technology guru.

He excels at coaching both little league and big clients.

Mark runs M&A strategy and execution for LUMA.

He’s never met a term sheet he couldn’t improve.

Dick leads LUMA’s mobile and gaming banking coverage.

You can find him holding court every February in Barcelona.

Conor ties it all together, managing LUMA's junior teams.

He also wrangles the senior team together.

Gayle runs LUMA’s marketing, events, and partnerships.

Think of her as top of the LUMA funnel.

Lastyeartherewasalotoftalkaboutthedeathofthesector,butitwasperhapsexaggerated.TheperformanceofAdTechandMarTech stocksthisyearscreams"notquitedeadyet”.AdTechisup26%,althoughlargelyduetothestrongperformanceofTheTradeDesk.MarTech isupanastounding167%,ledbythegrowthofShopify.AbsentShopify,MarTech isstillupover50%ontheyear.

Overthistimeperiod,AdTechandMarTech stockshavegainedover$8billioninmarketcapvalue,agreatsignforthesector.

Buttoputthe$8billiongainintoperspective,FacebookandGooglegainedoveraquartertrilliondollarsofmarketcapvalueduringthesametime.

Lastyear,wehighlightedthesolemnnarrativesurroundingtheIPOmarket.TheIPOwindowwasverymuchclosed.

Butnowthemediamessaginghaschanged.TheIPOwindowhasre-opened.

Overthelastyear,afewcompaniesinthesectorhavegonepublicandmaintainedsolidafter-markettradingperformance.

TheIPOpipelineisfillingupquitenicelywithcompaniesfrommediatomarketing.TheIPOisfinallybackinvogue.

Ifweshifttotheprivatemarkets,thenarrativehasoftenbeennegativearoundthesectorandwewouldhaveexpectedventurefundingtofalloffaclifflastyear.However,nearly$2billionwasstillfundedin2016,whichismoreinlinewiththelastsixyears.

Differentiatedcompanieswillcontinuetogetfundedinanyenvironmentandhereisalistofnotablefinancingsoverthelastyear.

TheonespotthatcontinuestobebrightinourperspectiveisM&AacrossAdTech,MarTech,andDigitalContent.TheM&Amarketsareontrackfor250dealsthisyear,butwhatwefindmostnotableisthattherewerenearly50dealsover$100millioninthelastyear.

In2016,thereweremorethanahandfulofbilliondollarexitsinjustAdTechandMarTech.

M&Aisofftoastrongstartthisyearwithanumberoftransactionsover$100million.

NotonlyhasM&Abeentheprimarysourceofexits,itisalsothemostvaluable.We’veseenasizablepremiumofstrategicM&Avaluesoverpubliccompanytrading.

Thepremiumisevenmorepronouncedifyouremovethehighflyersfromeachpubliccompanyset(ShopifyandTheTradeDesk)whicharedisproportionatelyliftingpublicmultiples.

What’sdrivingthis?Aswe’vebeensayingforyears,theuniverseoflargepotentialbuyersinterestedindata-drivenmarketingcontinuestoexpand.

LookingatLUMA’slasteightdeals– wetouchedsevendifferentbuyercategories(andwecantellyoumoreareontheway).

IfwelookatprivateequityinAdTechandMarTech,weseeanumberofverysignificantdealscontributingtotherecentriseofprivateequityactivityinthespace.

Whatwe’reseeingistheevolutionandmaturationofthesector– whichisagoodthingforincreasedexitopportunities.

Lastyearwehighlightedalistofissuesindigitaladvertisingfromtransparencytofragmentation.

Allofthesetopicsarestillmajorissues,butwenotethatsomeofthemcontinuetogarnermoreattention,suchasheaderbiddingandmeasurement.Thisyearwehaveaddedadversecontext,aculminationoffakenewsandbrandsafetyissues,whichhasbeenabigstoryin2017.

Whatonecouldinitiallydismissasasimplehack,headerbiddinghasturnedouttobealotmore.Itisfundamentallychangingtheeconomicsandrelationshipsacrosstheprogrammaticecosystemasamajordisruptiveforce.

Net-net,wethinkheaderbiddingisagoodthing.ItacceleratestheavailabilityofhighqualityinventorythatwilldrivehigherCPMs.Thechallengingaspectofheaderbidding,however,isincreasedcompetitionandtightereconomics,whichwebelievewillhastenconsolidationinthesector.

AmajorissueinprivacythatfeelstobeablindspotformanyintheindustryisGeneralDataProtectionRegulation(GDPR):newEuropeandataprotectionregulationsthatwillgointoeffectin2018.GDPRwillhaveamaterialimpactonhowcompaniesmanageconsumerdata.Gartnerpredictsthatatleastoneoutofeverytwocompanieswillbeunderpreparedforthisshift.

Lastyearweintroducedthisgraphiconthelifecycleofamediaimpressiontohighlightthechallengesoffraud,unviewable inventoryandadblocking.Marketersaretakingastandanddemandingthatweseechangestotheseissues.

Andit’snosurprisebecauseviewability standardsareveryinconsistentacrossthemajorplatforms.

Brandsafetyisnotanewissue,butithascertainlygottenmoreattentionwithrecenttroublessurroundingFacebookandYouTube’splatforms.

Someoftheworlds’largestadvertisersarepullingspendfromtheseplatformswhileothersareboycottingthemaltogetheruntilissuesareresolved.Inresponse,FacebookandYouTubeareworkingquicklytocleanuptheirplatformsandwinbacktheirtrust.

Oneofthereactionstoadversecontextinthesectorhasbeentheriseofpremiumpublisherconsortia.Majorpublishers,traditionalanddigital,arebandingtogethertoofferadvertisersaggregatedpremiuminventorywithlargescaleacrosstheirproperties.

Whattheindustryneedsisvalidthird-partymeasurementwherethemajorplatformscannotgradetheirownhomework.Standardsarebeingsetbyindependentthirdparties,suchastheMRCanditsone-second,50%in-viewstandard,whiletechnologyvendorsarebeingleanedontopushconsistencyacrosstheindustry.

EvenwithstandardsinplaceliketheMRCviewability standard,weshouldbeaskingourselves:Arewemeasuringtherightthing?Doyoufeelyouaregettinganyvaluefromthesestandards?Shouldwebefocusingonsomethingthathasmoretodowithengagement?

Webelieveweareonaninevitablemarchawayfromproxiesandmoretowardsunderstandingwhereconsumersarespendingtime,howtheyareengaging,andultimatelydrivingbusinessoutcomes.

WewillbehighlightingtheseissuesinourupcomingDigitalBrief:TheEvolutionofDigitalMeasurement.

TheconcernwiththeDigitalDuopolycontinuestogrowasnearlytwo-thirdsofdigitaladvertisingrevenueandalmost100%ofincrementalgrowthofthemarketarecapturedbyFacebookandGoogle.

Therehasbeenalotofdiscussionaboutwhomightbethethirdplayer:Twitter,Oath(Verizon),orSnapInc.

ButwebelieveAmazonwillbethethirdforceandifitchoosesto,willbecomeamassiveplayer.

In2009,wepredictedacollapseofthepurchasefunnelandthelikelystrategiesofvariouscompanies.TheconclusionthatgotthemostheresywasthenotionthatAmazonwouldmoveupthefunnelandintomediainabigway.AlthoughadvertisingwasinfactoutsideAmazon’scorebusiness,itcouldhelpdriveit.

Thatnotionmayhavebeenheresyatthetime,butwithanalystestimatesofAmazon’sadvertisingbusinessover$5billionnextyear,wehaveseenthatcometopass.Amazoniswell-positionedtocapitalizeonthisopportunitywithitssophisticatedadvertisingtechnology,webservicesubiquity,andtheAmazonEcho.

WhileFacebookandGooglemayhavedemographicdataandproxiesforintent,Amazonhastrueintentandpurchasehistorydatatounderstandthefullcustomerjourney.Amazonhasauniquedatapositionintheecosystem.

Wewanttocommendthelargeindustryassociationsfortakingastandtocreatestandardsandhighlightingissuesforallconstituentsoftheecosystem.

Ultimately,thoseeffortshelpedmarketerstakeontheissuefirsthand.Itisthe“powerofthepurse”thatismakingthedifference.Whenmarketerswiththewalletstakeastandontheseissues,that’swhenwestarttoseeaction,andwe’vebeenencouragedtoseehowmajortechnologyplatformshaveresponded.

Wetalkalotaboutthemuchneededconsolidationanditisnowhappening.Ifwelookbackfouryearsago,acquisitionshaveoutpacednewcompanyformationontheDisplayandMarketingTechnologyLUMAscapes.Netconsolidationishere!

Itisinterestingtoseeoldmediacompaniesfundingupstartsthataretryingtounseatthem.Webelievethisisawisestrategytounderstandthedigitalecosystemandhowtheirbusinessisgoingtochangegoingforward.

Newmediavaluationsarelarge– especiallycomparedtotheirmoretraditionalcounterparts.

Whenwedigdeeperintovaluations,newmediacompaniesarebeingacquiredorfundedwithveryhighsingledigitrevenuemultiples,whichcomparesveryfavorablytolowsingledigitrevenuemultiplesoftraditionalmedia.

Indigital,thependulummayhaveswungtoofarwithanoveremphasisonscaleoverbrand.WithubiquitousdistributionfromtheInternet,adefensiblepositionisgarneredthroughastrongbrand.

Butbuildingastrongbrandisn’teasy.Themostrecognizedandiconicmediabrandswerebuiltfromauniquevoice,history,andmanyotherintangibles.

Strongbrandsareapowerfulassetbecausetheyarelessvulnerabletoecosystemchangesinmonetizationandthewindsofprogrammatic…

…aswellasalgorithmchangesandwhimsofthemajordistributionplatforms.

Weenvisionthepublishervaluematrixthrough“Want-to-Know”and“Need-to-Know”properties.Whiletherearelargepublishersofgeneralinterestor“Want-to-Know”content,thereareotherswithscaleand“Need-to-Know”contentthathaveamaterialadvantage.EvensmallpublisherswithanichefocuslikeB2BtravelmediacompanySkift canbuildloyal,lucrativeaudiencesandbyeffect,astrongdefensibleposition.Butifsmallpublishersdon’tdeliverqualitycontent,theywillfaceachallengingfuture.

Wearewitnessingsomeinterestingdevelopmentsunfold,suchasBuzzFeed,whichisfindingsuccesswithitsnewstandalonefoodbrandTastyandisbuildingablueprinttostartmoreverticalproperties.Vox Mediahaslongpursuedthisstrategy,havingbuiltandacquiredafamilyofverticalstoaddressalltypesofcontentsandengagedaudiences.

Ultimately,ifpublisherscanbuildaloyalfollowinganddirectrelationshipswiththeiraudiences,theywillhaveawidevarietyofmonetizationopportunitiesbeyondadvertisingattheirdisposal.

Webelievecontentrecommendationwillbecomelegitimized.CompanieslikeTaboolaandOutbrain wereontotherightthingwiththeideathatreadersshouldreceivesuggestedcontent,butitwillneedtoevolve.Whyshouldn’tindependentpublishersbeabletoprovidethesame,personalizedexperiencepioneeredbyFacebook?ThatisexactlywhatTaboola istryingtoaccomplishwithitsnewestproductinnovation:NewsFeed.

Afteryearsofhype,mobileadvertisingfinallyovertookdesktoptoaccountforthemajorityofdigitaladspendin2016.

Followingthedollarsflowingintothespace,wealsosawmobileadfraudbecomeaheadlineissueandkeyfocusareaforbrands.

Fraudisaseriouschallengewithbadactorscontinuallyinnovatingnewmethodstoscamtheecosystem.

Platformshavearesponsibilitytoscreenappsandadstoensurecompliance(andcontinuetomonitorpost-approval). Attributionplayersdetectunusualclick/installbehaviorandblacklistbadactors. Verificationcompaniesvalidateadsareviewablebyhumans. Blockchain holdspotentialwithitstransparentmethodofrecordingtransactions,butneedstobecomemorereal-timetobeviableinaprogrammaticenvironment. Finally,therearealwayslegalconsequencesifviolationscanbeproven.

Here'sarepresentativelistofcompaniesofferingsolutionstomitigateagainstfraudandfacilitatebetteradexperiences.

Lookingbeyondfraud,it'samazinghowmuchwastepersistsinadspend. It'snotenoughtoemploythebestperformingformatsifthetargetingisoff. TheseexamplesofadsservedtoanEnglish-speakingmalearedifficulttoreconcilewiththepromiseofhighlypersonaldevicestodeliverrelevantmessages.

Clearlyleveragingthedatathatcanbecapturedfromdevicesistheanswertoenablingeffectivetargeting,butthisisatwo-sidedcoin. Datamustbehandledinaprivacy-compliantmannertoensureitrealizesitspotentialanddoesn'tbecomeasafetyhazard.

Locationisadatasetthatisuniquelypowerfulonmobile,asconsumersalwayscarrytheirphones. Thelong-discussedlocationusecaseisgeofencing,wherepeoplepassingaretailertriggeraddelivery. Thisvisionhasnotbeenrealizedandisunlikelytodoso,aswetypicallymovethroughlifewithapurposeandwithoutwantingtobeinterrupted,asopposedtohavingadesiretobesurprisedanddelightedbyads. ParticipantsinthePokemon Gocrazemaybetheexception.

Weareverybullishontheroleoflocationinmarketingandareseeingsomegoodmomentuminthesector. Therealpotentialisformeasurement,firstforbuildingaudienceprofilesfortargeting(ifyoucantrackapersonforahandfulofdays,onecangetaprettygoodsenseoftheirbehaviorandpreferences),andultimatelyforattributiontoproveaservedaddrovethedesiredactionwithastorevisit.

Apracticalproblemwithexecutingonthisvisionisthequalityofavailablelocationdatarelativetothescaleneedsrequiredtoefficientlyruncampaigns. Muchofthelat /longcoordinatespassedthroughexchangesisinaccurateandsomeofitisfraudulent.

Thegoodnewsiswe'veseenanumberofnewinitiativesandpartnershipstobringtomarkethighqualitylocationsignalatscale.

AnewentrantwithpromiseisSnap,whichrecentlyintroducedtheir“SnaptoStore”producttomeasuretheeffectivenessoftheirgeofilter campaigns. Giventheirhighlyengagedaudience,therearemorethan1billionSnapsvieweddailythathavegeofiltersappliedand,assuch,sharelocation. Amajordigitalagencycommentedfavorablyonthescaleandaccuracypotential,andWendy'ssawsuccesswiththeproduct,measuringover42,000incrementalstorevisitstheweekaftertheyranageofilter ad.

We'vebeenveryimpressedwithandencouragedbythepaceofSnap'sinnovation. Theadexperiencesenabledbytheircreativetoolsaren'tjusttolerated,they'replayedwithmultipletimesformeaningfuldurationsandsharedwithfriends. IfSnapcanbeassuccessfulwiththeirmeasurementinitiatives(whichalsoincludesalaunchpartnershipwithMoat'sVideoScore),itbodeswellfortheindustry,astheecosystemisdevelopingatrackrecordofadoptingsuccessfulproductsthatSnappioneers.

Wealwaysliketoremindourselveswhatmarketersaretryingtoachieve:toincreaserevenuesprofitablyatthelowestcost.Todothis,marketersarefocusedonoptimizingthecustomerexperiencethroughdeliveringtherightmessageattherighttimetotherightperson– foreachandeveryconsumer.

Toenablethis,therearethreefundamentalareasthatmarketersneedtomaster:data,identityandorchestration.Dataandorchestrationtogetherenable“therightmessage”“attherighttime”andidentityenables“totherightperson.”

Foryearswehavenotedthatthe“enterprisestack”istheintelligencelayerfordigitaladvertising,sinceitcomprisesthesoftwarethatenterpriseslicensetoplan,powerandmeasuredigitaladvertising.Thisisoneofthemainreasonsthe“marketingclouds”havefocusedtheiracquisitioneffortsintheseareas.

NowthatSalesforcehasacquiredKrux,thethreelargestmarketingcloudsallhaveaDMPoffering.ThesecompaniesaresellingtheDMPasafoundationaltechnologytopowerdigitalmarketing.InitsmostrecentDMPWavereport,Forresterstatesthat“DMPssitatthecenterofthemarketingcloud,bridgingthegapbetweenAdTech andMarTech…WiththeDMPatthecenter,themarketingcloudwillbethehubofenterpriseintelligence.”

DMPshaveevolvedovertheyears.Initially,theymanagedcookiesfordesktopdisplayadvertising.Overtimetheyexpandedtheircapabilities,suchasaddingdataanalytics,tagmanagement,andmobiledatamanagement.WhileDMPstodatehavefocusedonmanaginganonymousdata,Salesforcerecentlystated“thecomingtogetheroftheknowncustomer…andtheunknown…isauniqueopportunitytobringthebestofCRMmarketing”totheDMP.

EventhoughtheremaynowbesomeblendingofCRMandDMPdata,marketinggenerallyisstillverychannel-centricwithmultipledatasilos.However,tocreatea“singleviewofthecustomer”andenabletrueomni-channelmarketing,thesedatasetsneedtobeutilizedtogether.

Therefore,oneoftheemergingsegmentstowatchisthe“customerdataplatform”category.Thesesystemscollectandunifydatasources,analyzeandsegmentthedata,andthencoordinatetheinteractionswitheachconsumerthoughthevariousexecutionchannels.Wenotedcompaniesthatweredoingthisforecommerceafewyearsago(andnamedthem“predictivemarketingplatforms”),andnowseethisextendingbeyondcommerce.

Thefocusondata-drivenmarketingandadvertisinghasspawnedanotheremergingcategory:identity.Facebookkickedoffthe“identity”discussionwithitslaunchof“people-basedmarketing.”Sincethen,bothenterprisesoftwareandinternetcompanieshaveinvestedheavilyinthisarea,creatingandassemblingofferingsthatenablemarketerstoreacheachconsumeronwhateverdevicetheymaybeon– orscreentheymaybeinfrontof.

Earlierinthispresentation,wenotedthat“dataisthenewoil.”

Oneofthereasonsforthisisthatdataisthefuelforanothersignificantnewtrend:artificialintelligence.Overthepastyear,thenumberofarticlesonA.I.hasexploded,withmanyofthemquestioningwhetherA.I.works.WebelievethatA.I.iscurrentlyinthe“disillusionmenttochaos”phase,butthatsoon– withinafewyears– wewillmoveintoan“amazement”phaseforwhatA.I.isenablingingeneral,andspecificallyindigitalmarketing.

WehavetoremindourselvesthattheA.I.marketisstillveryearly,wheremarketersandvendorsarecurrentlyexperimentingwithA.I.Thisgraphremindsusoftheprogrammaticadvertisingmarketin2010whenmarketerswerefirstexperimentingwiththattechnology.Butthemarketthentookoffandprogrammaticnowrepresentsabout2/3ofdisplayadvertising.WebelievethesamedynamicwilloccurwithA.I.

TheabovequotesspeakforthemselvesontheimportanceofA.I.totheseleadingtechnologycompanies.

Itisveryinterestingtonotethat10yearsago,thetoptwocompaniesintheworldbymarketcapwereoilcompanies.Now,thetop5companiesaretechnologycompanies–allwithmassiveamountsofdataandallinvestingheavilyinA.I.

Towrapupthis“dataandidentity”section,webelievethatleadingmarketerswillintegratetheirdatasourcesandsilos,likelyusingtechnologiessuchasacustomerdataplatform.Identitywillbeacriticalpartofthestackinordertoreacheachconsumer.Andan“orchestration”layer,poweredbyA.I.,willenabletrueomni-channelmarketing,helpingtooptimizethecustomerexperiencewiththerightmessageattherighttimetotherightperson.

Twiceinthelast12months,we'veseenheadlinesaboutthelargestE-Commercetransactionever.FirstwithWalmart's$3.3BillionacquisitionofJetandthenmorerecentlywithPetSmart's$3.35BillionacquisitionofChewy.Inbothinstancesyouhadalarge,traditionalretailerwithslowinggrowth,acquiringahighgrowth,innovative,digital-firstcounterpart.Weexpectthesetypesoftransactionstocontinueastraditionalretailerslookformoredigitaltouchpointsandincreasedinnovation.

DespitetheselargeinvestmentsinE-Commerce,digitalsalesstillmakeupasmallpercentageoftotalU.S.retailsales.AccordingtodatafromtheUSCensusBureau,about92%ofallUSretailsalesstillhappeninstores.Digitalsalesaregrowinghoweverandatarate3to4timesthatoftraditionalretail- digitalsalesareexpectedtogrow8-12%thisyear,comparedto~3%growthforin-storesales.

Overthelastfewyears,Deloittehasconductedanannualstudyonthechangingshoppingexperienceandtheinfluencethatdigitalchannelshaveonin-storepurchases.Thisyear,forthefirsttimeever,Deloitteconcludedthatover50%ofin-storeretailsaleswereinfluencedbydigitalchannels.In2013,digitalinfluencedonly14%ofin-storetransactions.Thisgrowthhaslargelybeendrivenbytheproliferationofmobiledevicesandconsumerscontinueduseofthesedevicesinallaspectsoftheirlives.

Thedramaticgrowthindigitalinfluencecouldhavesignificantimplicationsforin-storemarketing,anapproximately$60billionmarketintheU.S.,primarilyforpaperprinteddisplays,endcaps,andproductplacement.Asmobiledevicesbecomecommontoolsforshopping,mobilehastheopportunitytoessentiallyreplacetheendcap.Howquicklyandeffectivelymobilereplacestheendcap,willbedrivenbyadvancementsinlocationtechnology,consumerdataplatforms,andretailers'digitalexperiences.

Mobilepaymentsfurtherfusethesetwoworldstogetherandprovidetheopportunitytoclosetheattributionloopfromonlinetooffline.Today,in-storemobilepaymentshavenotbeenwidelyadoptedintheUS,representingonly1%oftotalretailsales,accordingtoastudydonebyBusinessInsider.However,volumeisexpectedtopickupconsiderably,reaching$503billionby2020.

WhenitcomestocommercethebiggeststorycontinuestobeAmazon'sdominanceattheexpenseoftraditionalretailers.Overthelastfewyears,Amazonhascontinuedtogrowatstaggeringrates,whiletraditionalretailerssuchasTarget,Macy's,andSearshaveseendecliningrevenuesanddecliningmarketcaps.

OneofthereasonsAmazonhasbeensosuccessfulisthattheyhavefarmoreconsumertouchpointsthanmosttraditionalretailers.Amazonleveragesitsmanyconsumertouchpointsacrossdesktop,mobile,andTV,inordertocollectdataonitsconsumersandenhancethecustomerexperience.

AmazonhasbeensogoodatleveragingthisconsumerdatathattheyareevendisplacingSearch.Ifyouconsiderthedigitalpurchasefunnel,youtendthinkofGoogleatthetopofthefunnelastheprimarysearchengineandAmazonatthebottomforpurchaseandreview.

However,accordingtoasurveyconductedbyBloomreach lastyear,Amazonisactuallybecomingthesearchengineoffirstresortwhensearchingforproducts.Ofthosesurveyed,55%ofUSdigitalconsumersgotoAmazontosearchforaproductbeforegoingtoothersearchenginesorretailersites.ThisisjustanotherexampleofAmazonmovingupthefunnel,muchtheywaytheyarenowdoinginadvertising.

Finally,wewanttotouchontheAmazonEchoandAlexa.WeseeAlexaasatotalgamechangerforAmazon.WhileAmazonwasbynomeansthefirsttovoiceassistants,they'veusedAlexaandtheirEchoproductsasatrojan horseintoyourhome.They'vepricedtheirproductsinsuchawaythatyoucouldeasilyputoneineveryroomofyourhouseandhaveleveragedthefactthatwhilemostconsumersdon'tnormallytalktothemselvesinpublic,theyaregenerallycomfortabledoingthisintheirownhomes.

LikeallAmazonproducts,weexpectAlexatodrivecommerce.AccordingtoatestdonebyScottGallowayatL2,AmazonisalreadyincentivizingthispracticebyofferingtheproductsatcheaperpricesthroughAlexathanAmazon’sownwebsite/app.Thiscouldhavehugeimplicationsforbrands,particularlyCPGbrandswhoseproductstendtobelowcost,tediouspurchases,asAmazonattemptstotrainconsumerstosimplyaskforaproduct,ratherthanabrand,suchas"Alexa,buymetoothpaste".

What’sthenextfrontier?Isitvirtualoraugmentedreality,A.I.,bots,theInternetofThings,orself-drivingcars?A.I.willbeeverywhereuntilitisubiquitous,butwhiletheseothertechnologiesareinterestingandshouldbepursuedinsomeinstances,theywilltakeawhiletogrowmeaningfuladoptionandtractioninthemarket.

Inventure,beingtooearlyhasthesamereturnprofileasbeingwrongsoitisreallyimportanttolookatnear-termopportunitiesandthebiggestopportunityindigitalbyfarisalreadyinyourlivingroom:television.

Thecomingdigitaltransformationandaddressabilityoftelevisionisamassivemarketover$73billionintheU.S.– rightnow.

WeareintheGoldenAgeofContentwithanastoundingincreaseinnewshowsandoriginalcontentinafewyears.Anditisn’tjustaboutquantity.Wehaveabetterviewingexperiencenowthanwhatwehadjust10yearsago.

LeadingthechargeareAmazonandNetflix,whichareexpectedtosignificantlyoutspendtraditionalTVnetworksinoriginalcontentthisyear.Weexpectthesedigitalpowerhousestocontinuetoinvestheavilyincontentastheyhavegeneratedhugereturnsfromtheseeffortsandareproducinghighqualityprogrammingthatisbeingrecognizedbyviewersandindustrywatchers.

ContrarytothenarrativecomingfromtraditionalTVstakeholders,cordcuttingisnotjustareality;it’salsoaccelerating.

ForconsumerswhoarecuttingthecordandthosewhohaveneveradoptedtraditionalTV,therearenowplentyofoptionsthatcontinuetogetbetter.Thesealternatives,suchasDirecTVNow,HuluLiveTVandYouTubeTVaren’tjustofferinggreatcontentandattractivepricepoints,buttheyarealsodeliveringbetterproductswithuser-friendlyinterfacesandpersonalizedexperiences.Consumerscannowexperience“TV”inmorethanoneway.

Inlinear,addressableTVadvertisingremainsasub-billiondollarmarketbecauseitislimitedbythe2minutesofavailablelocalTVadtime andbyMVPDsthathavethepropertechnologydeployedacrossthecountry,whichistheminority.Whenyoulookatthetrue“addressable”marketrightnow,itisonlyafractionofallhouseholdsintheU.S.Inthefuturewhennationalinventorybecomesaddressableandthereislargerpenetrationoftherequiredtechnology,addressableTVwillbecomeamassivemarket.

WhenwethinkabouttheinflectionpointthatwilldrivethegrowthofaddressableTV,wefocusondemand,supplyandgettingtechnologyintherighthands.Whenwelookbacktotheriseofprogrammaticadvertising,agenciesfoundalargeandprofitableopportunitytogrowtheirbusinesswiththisnewwayofdigitaladvertisingwhiletheubiquityofdigitalinventorybroughtsupply.Finally,webelieveGoogle’sacquisitionofInviteMediawasthecatalysttothemarketbygettingtechnologyintherighthands.

InaddressableTV,wethinktheinflectionpointiscoming.Agenciesarepositionedtomakeevenmoremoneyinamarketwheresupplyisscarceandconstrained.WearealsoseeingtelcogiantsComcastandAT&TacquiretechnologythroughtheacquisitionsofVisibleWorldandINVIDIrespectivelyandweexpectmoreactivity.

(Cont’d)

Amassiveopportunityisatstakehere,whichiswhyit’snosurprisethatthereisanintensebattleforthefutureofTV.Thenewentrantsaretakinganoffensiveapproachtostealmarketshareandtheexistingplayersaretakingadefensiveapproachtomaintaintheirs.DigitalcompaniesareleveragingcontentandbetterproductstogettheirwayinwhiletheincumbentsarerelyingonregulationtosecuretheirfootinginthemarketplaceandM&Atoacquirecapabilitiesnecessarytoplayinthisfuture.

Despitebeingonthedefense,lineardistributionhasbeenactivelypursuingthe“verticalization”ofmedia,wheredistributionfirmsareacquiringcontentandmonetizationtechnologytocontroltheentirebusiness.Comcast,VerizonandAT&Thavebeenthemostactivewiththisstrategyastheytrytocapitalizeonthelargeopportunityinfrontofthem.Whiletheyhavenotbeensittingontheirhands,wesuggestthattheylacksufficientdigitalmonetization,whichshouldleadtomoreM&A.

Thereareotherplayersthataremakingmovesintothisarenaaswell.Weexpecttoseemoretocontinue.

(Cont’d)

ThemissionoftheLUMACorporatePartnersprogramistoprovideeducation,insightsandmarketdevelopmenttoallconstituentsofthedigitalecosystem.LUMA’sCorporatePartnersarecomprisedofleadingmedia,marketingandtechnologycompaniesforwhomLUMA’sleadershipteamprovidesstrategicadviceonthelatestindustrytrendsandafreshperspectivetoaidinmakingcriticalgrowthdecisions.LUMA’sproprietaryinsights,research,contentandeventsinitiativesaffordpersonalizedguidanceandeducationatleadershipoff-sites,teach-insandcustomerevents.IfLUMAcanhelpyourorganizationsortthroughthiscomplicatedanddynamicsector,contactGayleMeyers,CMOatGayle@lumapartners.com.