AOL bets on the decline of linear TV: the odds are long

Following AOL’s purchase of Adap.tv, along with fresh viewing figures from Thinkbox, it’s plain to see that video on demand is growing, says Dominic Mills – though achingly slowly – and live TV certainly retains an iron grip on our viewing habits for now.

I’ve been wondering what to make of AOL’s announcement, earlier this month, about its purchase of Adap.tv, essentially a video ad placing platform, for $400 million.

This is how AOL CEO Tim Armstrong put it: “Two trends in the video space are prevalent right now – the movement from linear TV to video and the shift from manual transactions to programmatic media buying. Adap.tv is positioned squarely in front of the huge opportunity these trends are presenting.

In a nutshell, Adap.tv is a large bet (larger than Huffington Post, at $300 million) on two things: one, that linear TV viewing is on the way out; and two, that programmatic trading is on the rise.
Of the two, I’d put my money on the latter.

However, for AOL, since what it is really interested in is programmatic video trading, as opposed to the much larger programmatic display sector, the two are linked.

And this is where the odds look long. Just last week, Thinkbox produced some stats to show that viewing via devices (laptops/tablets/phones) accounted for just 1.5% of total viewing in January-June this year.

That’s three minutes and 30 seconds a day, or in more concrete terms, just over three half-hour episodes of Corrie a month. Of this, Thinkbox says, most was on-demand but some was live.

The good news for VOD fans, however, is that on-demand viewing is rising – up by 0.3 percentage points in the last six months.

Is this enough growth to sustain a business like Adap.tv? Linear TV is a long way off being a busted flush. Linear viewing in the UK may have dropped by three minutes a day in the last six months (which Thinkbox partly attributes to an improvement in the economy), but we’re still watching 12 minutes more linear TV a day than we did in 2003.

Of course, the AOL bet is more on the US than the UK, but the figures from Nielsen for Q1 this year are broadly the same.

US viewers spent about 185 hours in total a month watching TV or video via a device. Of that, 157 hours, approximately 85% is live TV; of the remainder, about half is timeshifted TV, and the remaining 8% is split between video on the internet and video via a mobile.

Compared with the same quarter in 2102, total viewing is up – but video on the internet is down by two hours per month.

So while it is, broadly speaking, possible to argue that video on demand is growing, it is achingly slow. Live TV retains an iron grip on our viewing habits.

Now those are composite figures, and I have no doubt that video’s share of viewing among the demographics most attractive to advertisers is larger. However, they are unlikely to be large enough to take meaningful budget away from traditional TV, which is really the basis of AOL’s gameplan.

Until that happens, there is at least another string to Adap.tv’s bow, which is doing platform deals with the big media buying networks like IPG’s Magna to become, in essence, their entire automation platform.

Even so, it’s still a big bet for AOL and one, moreover, that may take a good number of years to pay off.