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Addressable advertising is a burgeoning business in the industry of television ads. This year, advertisers will spend an estimated $2.5 billion on the format—up 23% from 2018, according to eMarketer. [1]

This is because addressable TV advertising, or targeted TV ads as they are alternatively called, is a boon for advertisers who want to reach a very specific viewer with a targeted campaign. Television has traditionally been a great buy for advertisers who want to reach a large population, but thanks to advances in technology, they can now also advertise on television to meet specific audience goals based on demos or buying habits.

But what exactly is addressable TV, and how does it work? Here’s the breakdown:

What it is:
Addressable TV advertising is the ability to deliver different TV ads to different households, and potentially individual viewers. That means if you’ve just returned home from walking your dog on the streets of Manhattan to watch RuPaul's Drag Race at 9 p.m. on VH1, and your aunt in Nashville is doing the same while making dinner for her kids, marketers can direct an ad for a meal delivery service to her and an ad for pet food to you.

In multi-platform scenarios two people, each in different households, can be served different ads while tuning into the same program. For example, if two people in two different households are both watching a basketball game, one viewer watching on the big screen in their apartment can be served a different ad than another viewing who is tuning in on their laptop in another household.

How it works:
With addressable TV, brand marketers first define their target audience. So, for example, a fast food restaurant may know that it wants to reach women between the ages of 18 to 34 who have purchased fast food in the last year. The restaurant can hire a third party data firm, such as Neustar or Acxiom, to create an anonymized target list of consumers based on credit card data. (This database would never contain personally identifiable information, and would never actually be sent directly to the marketers.)

Cable and satellite providers are able to use the anonymized third party data to match its household-level demographic and viewing data to identify and triangulate the right audience.

Why it’s important:
In the most common form of linear TV advertising, the same TV ad is broadcast to all households watching the same program, and ads can only be targeted based on a program’s age and gender.

Addressable allows for the creation of very specific audience segments and very specific ad delivery. So, someone in the market for a new car can be shown an auto ad. While someone else tuning into that same program who’s a diehard sports fan can be shown an ad for pizza.

With 74% of Americans believing the TV commercials they see aren’t relevant to them, according to Adobe Digital Insights’ Advertising Report, addressable advertising solutions allow for relevance and impact.

The key players:
Multichannel video programming distributors (MVPDs) — like Comcast, Dish, DirecTV/ AT&T, Cablevision, and Verizon — are currently the main facilitators of addressable ad delivery. However, as smart TVs and connected devices become increasingly popular among viewers, companies such as Vizio and Samsung are now enabling technology to support addressable ad services.

OTT streaming platforms are also beginning to get involved. Hulu, for example, has gradually started to sell addressable into its live TV service over the past month, and YouTube plans to do the same.

The winners:

• Advertisers - Addressable makes it possible for brands to reach very specific audience segments. That level of precision and personalization of the ads allows brands to better connect with their audiences and pull them into their message. It also gives them the ability to measure attribution and sales lift.
• Viewers - TV watchers get to see more commercials that align with their interests and are more relevant to them). That means hockey fans will get hockey ads, and homes with pet allergies will see dog food commercials.

The challenges:

• Scale - Currently, only about half of households in the U.S., according to Nielsen and AdAge, have the technology to receive an addressable ad. This is beginning to change with the adoption of connected devices. During the past year, the total of addressable TV households has grown significantly, increasing to nearly 75 million homes in 2018 from sub-68 million in 2017, according to eMarketer.
• Standardization - Marketers typically execute addressable campaigns across a few TV providers, and use a number of different measurements standards, including Comscore and FreeWheel among others, which creates a lack of standardization in reporting and analytics. Standardized reporting would ideally help advertisers make more accurate data-informed decisions.

The big picture:
For many brands, addressable is currently seen as an add-on to extend their reach of traditional linear TV strategy. However, as it becomes more common, marketers can expect to allocate more budget towards better targeting and better data analysis when it comes to TV advertising.

Sources

1. 
   eMarketer, July 2018. Targeted TV ads delivered on a home-by-home basis via cable and satellite boxes; includes video-on-demand (VOD); excludes connected TV, smart TV and over-the-top (OTT).