Table of Contents

BARRICADED DATA 01

INVENTORY INSUFFICIENCY 03

ALTERNATIVE SUPPLY 05

MUDDLED OTT07

MOBILE STABILITY09

11

13

15

STATIONARY OUTDOOR

CONTENT COMMODITIZATION

REALITY BITES

1

BARRICADED DATA

The data wall in China is higher than ever . With digital spending concentrating on BAT assets and hero apps, big publishers have become even more dominant. Publishers are building advertising products within their ecosystem and release minimal data to third parties and advertisers. It is not only BAT who are taking this stance, even hero apps like Toutiao are keeping their data walled.

The dream of using single source tracking to optimize buys and understand consumer journeys is yet to be realized. Tracking vendors like Miaozhen and Admaster have been talking about single source panels for a long time, and Miaozhen has tentatively promised a single source product in 2018. But there are reasons why single source panels do not yet exist and are unlikely to exist in the near future: the cost required to build and maintain a panel is extremely high, and data has been difficult to verify or correspond to other databases.

Big data dream is unattainable

2

I t is not all dire. With rich first-hand data and technological advancements, brands are able to build their DMP (data management platform). But due to the lack of 3rd party date, it is unlikely to help understand user journeys or optimize their digital buying. Smaller clients are better off using PDB (pro-grammatic direct buy) to ensure good inventory, better targeting and brand safety.

3

Advertisers looking to use video to reach their audiences will face significant challenges to secure inventory on TV and OTV this year.

Inventory shortages are due to a maelstrom of issues: supply dramatically decreasing while demand from advertisers remaining high. Ratings decline in local TV (LTV) have eliminated a source of supply—LTV spending share of top 10 advertisers has dropped from 19% to 15% in the past three years. Even national TV (CCTV) and top provincial satellite (PSTV) channels are suffering from a sharp decrease in ratings. To build reach, brands are fighting for prime time inventory on CCTV/PSTV, exacerbating the situation from the demand side.

Brands are mitigating the dwindling TV video supply by moving to OTV. Many advertisers still expect OTV to offset the prohibitively priced inventory on TV, but it is no longer the case in high demand tier 1 and 2 markets. There are chronic inventory shortages in Beijing, Shanghai, Chongqing, Tianjin, Nanjing, and Xi’an. This issue is intensified as many brands choose only to buy from BAT video sites, though other video sites have available inventory.

INVENTORY INSUFFICIENCY A seller’s market of video advertising

4

To satisfy growing demand, video sites have increased pre-roll durations, from 60 seconds to 90 seconds on hot programs. OTV advertising clutter has risen by 72% in the past four years.This increased clutter has given viewers added incentive to buy memberships to skip over advertising. With 40%+ of viewers on BAT video sites subscribing to mem-berships, OTV inventory is even more scarce.

I t will continue to be a seller’s market for online video inventory and prime time TV inventory. To build reach in the coming year, brands need to compete aggressively on the price or diversify their buying strategies beyond hot programs and prime time.

Data source: ADP, iresearch 2013-2017, Total TV rating is based on All people 4+

TOTAL TV RATING FROM 2015-2017 (PRIME TIME)

Rating

35

30

25

20

2015 2016 2017

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

34

ADVERTISING CLUTTERNo. of ads watched per day per person

2013 2017

47

19

TV OTV

11

To offset inventory shortages, brands are turning to more platforms for video advertising and looking for innovative ways to advertise.

In the next 12 months, video advertising investment will increase on non-OTV mobile apps like Toutiao, UC browser, Baidu news, and Weibo. These mobile apps are providing video advertising options like 5-second open page video ads in addition to in feed video or branded viral video ads. Together these apps provide another way to reach audiences: Toutiao itself has 232 million monthly active users.

5

ALTERNATIVE SUPPLY More options for video advertising

6

Tracking vendors are also catching up by including these video formats in mix reach calculations. One substantial challenge for brands is that consumers can easily skip in feed videos; impressions are being counted one second into videos play. However, with negotiations, publishers can count impressions after four seconds of play.

On the big screen, more brands will step into the OTT territory. Opening ads and video pre-rolls are the most common formats advertisers buy. In the past year, we have seen steady growth in OTT pre-roll advertising.

Although these innovations will not drive consistent mass reach for advertisers for now, brands should nevertheless test these formats to see if they drive incremental reach.

formats.

OTT ( Over-the-top ) spending grew by 160% in 2017, showing the potential of OTT as a video media to backfill TV and OTV shortages. However, the Chinese OTT landscape is still very fragmented. There are multitudes of stakeholders involved in OTT, including TV hardware manufacturers, OTT video applica-tions, content providers, broadcast license holders, OTT operation platforms, and OTT ad agencies.

Data source: Nielsen 2018 China family screen industry development white book7

OTT AD SPENDING BY FORMAT

Opening Ad Pre-roll Other2016 2017

Million RMB

2500

2000

1500

1000

500

0480

370

520

1750

MUDDLED OTTFragmentation brings confusion

2

3

As a result, we are very far away from the optimal OTT buying process. Monthly inventory supply is not stable. Vendors are checking with different TV manufacturers to get the previous months’ TV open rate to guess next months’ inventory. The OTT landscape still and will remain the wild west for the next 12 months.

OTT tracking involves much guesswork as well. Though Miaozhen and Admaster have launched OTT tracking as part of their multi-screen product, the tracking data has yet to be validated by the market.

With more smart TVs replacing traditional TVs, inventory will stabilize by 2020. Brands should understand the environ-ment and try to find the best buying method available to them, then test on a small scale before treating it as a core part of media plan.

8

VideoApplications

ContentProviders

BroadcastLicenseHolders

OperationPlatforms

Ad Agencies

HardwareManu-

facturers

9

This is not true for all mobile app categories: short videos, livestreaming, paid music and paid knowledge will still experience changes and ad spending growth in the coming year. In the livestreaming category, the top app list is still volatile, with big players fighting for traffic. But in the online video category where consoli- dation has happened, traffic of top 5 video apps accounts for 95.7% of all video traffic.

The volatile mobile app landscape is finally stabilizing. In most categories, the top app list has not changed since the second half of 2017. Fewer hero apps have entered the market, as entry barriers are very high. Not only do new apps have to pay to develop, brand and release their app, but gaining new users with fierce competition becomes very difficult.

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LIVESTREAMING APP RANKINGS

123456789

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YY LIVE 映客直播 直播吧 斗鱼 腾讯体育 虎牙直播

熊猫TV 新浪体育 龙珠直播 齐齐互动视频 一直播 花椒直播

NOW 火山小视频 来疯直播 咸蛋家

MOBILE STABILITY Volatile mobile landscape stabilizes

10

With consolidation, brands can now build long term relationships with the hero apps by concentrating their spending, tapping into better inventory and creative executions via partnerships. Investment on long tail apps will decrease even further in 2018.

Because of the concentration of spending, brands are more likely to choose PDB (Pro-grammatic Direct Buying) as the buying model rather than RTB (Real Time Bidding), allowing them to get guaranteed quality inventory at a pre-agreed price on hero apps.

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PHOTO APP RANKINGS

美图秀秀 美颜相机 天天P图 潮自拍 in 美妆相机 Faceu激萌

Camera360 PS平板版 玩图 水印相机 时光相册 腾讯相册管家

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VIDEO APP RANKINGS

乐视视频 咪咕视频 风行视频 天翼视频 超级视频 电影天堂

爱奇艺 腾讯视频 优酷 芒果tv 搜狐视频 PPTV聚力

Data source: Yiguan 2016-2017

11

Innovative technology on OOH—both format and tracking, continues to be implemented on a small scale because of high costs, lower profitability, and government regulations.

Currently, brands rely on online amplification of a single OOH creative to create bigger impact amongst a wider audi-ence. Since regulations on creative OOH are particularly strict and cost prohibitive in top-tier cities, brands can imple-ment their wild creative OOH ideas in a second tier city, and amplify on social media and mass media later. This strategy allows for cost savings and exposure in multiple regions.

STATIONARY OUTDOOR OOH innovation on a mass scale is still far away

12

There can be no denying OOH is impactful, especially for categories like luxury, automobile, and online apps. The challenge and benefit of OOH has always been its impact amongst a targeted but small audience. With the combination of OOH and social, brands are extending this effect outwards. What is yet to be seen is whether the same impact of the physical experience of creative OOH can be replicated through its social amplification.

Programmatic OOH networks on a mass scale have not progressed. There is little incentive for outdoor vendors to invest in mass OOH programmatic. They are reluctant to bring absolute transparency to the market in fear of revenue reductions if impressions tracked are lower than expected. Most brands accept this as part of buying outdoor media, and thus the status quo remains. Brands will still have to rely on the old method of pre and post surveys to measure outdoor effectiveness.

13

The increase of key opinion leaders (KOLs) in the market has changed the way marketers work with them. Instead of working with individual KOLs, brands now are working with Multi-Channel Networks (MCNs) which are KOL management groups. As lifespans of popular KOLs are getting shorter, brands cannot rely on long-term relationships with a single KOL. Partnering with a group ensures they can cooperate with a continuous group of popular KOLs and benefit from the relationship with MCNs.

The rise of content economy means production of content has become more plentiful and economical than ever. Con-tent creation has become factory produced in a streamlined process. Branded content, especially non-video versions are so commoditized that it has inundated the market.

CONTENT COMMODITIZATION Streamlined process of content creation

14

Differentiating by content quality rather than quantity becomes more important than ever. brands should cooperate with renowned production houses for their strong content innovation capability, sophisticated execution skills, and operational certainty. This will ensure the branded content stands out in the age of commoditi-zation.

A similar phenomenon is happening on E-commerce platforms. Brands can now work with agencies who employ hundreds of copywriters churning out thousands of articles for product recommendations. Brands only pay when those content pieces get featured on Taobao or other e-commerce platforms. With little thought going into these articles, these may soon be created by AI bots.

15

Multinational companies need to face the reality that the media environment today is more competitive than ever. They are no longer in a dominant position in the market.

REALITY BITES Clients need to face competitive reality

W

With TV ratings dropping, brands need to buy more spots to achieve the same GRPs, leading to higher CPRPs. The ratings downturn also means more GRPs are required to achieve the same reach. Thus, TV is getting more costly despite the ratings decline.

16

In a seller’s market, OTV publishers release better inventory to whoever is willing to pay more. With higher budgets, local clients can afford both OTV program sponsorships and CPM regular buys. They are not so concerned about high CPMs.

On the other hand, MNC clients often demand zero or negative inflation for inventory based on CPM/CPRP buys. Thus, they miss out on premium inventory, some of which only available to the program sponsors. Often when faced with this situation, clients choose instead to press on with their current strat-egy and savings goals which result in reduced reach and a weakened presence in the market.

Facing this reality, brands have to either pay higher prices for premium inventory or reduce their buying criteria to meet their reach and awareness goals, so as to ensure sales growth.

17

Irene AnAirwave Account

Director

Parker HuangExecutive Content

Director, Fuse

Tommy LiInvestment and Trading

Managing Director,OMG

Kassy PengAssociate Digital

Negotiation Director,OMG

Raymond WangHead of OMGProgrammatic

Owen WeiHead of Tactical

Planning TV Buying,OMD

Tony XiOOH GeneralManager, OMG

CONTRIBUTORS

18

CONTACT US FOR MOR INFORMATIONBhasker . Jaiswal@omd.comJeanette.Phang @ omd.com

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