Illustration: Axios Visuals

The hottest new trend in TV tech is "addressable" ads, or TV ads that can be targeted to specific households via user data. By the end of this year, almost every major TV network and provider will have rolled out their version of an addressable ad product.

Why it matters: It's a huge departure from the way TV ads have been bought and sold for decades. Struggling networks hope personalized ads will make the TV experience better for users who are ditching TV for ad-free streaming services like Netflix — and they're also drawn by the opportunity of a digital advertising market that isn't already controlled by Google and Facebook.

What's new: Traditionally, TV ads could only be bought and sold by gender and age — not demographics. This means that a cat lover could be served an ad for dog food, or a healthy person could get an ad for medicine. Addressable ads aim to make the messages more relevant.

Driving the news: Several big TV companies announced acquisitions or products this week that they think will make it easier for them to sell more addressable ads.

  • NBC says its new streaming service will create a lot of new addressable TV ad inventory. Hulu lowered the price of its ad-supported tier to be able to serve more addressable TV ads. Viacom acquired a digital ad-supported TV streaming company.

Here's how hot "addressable" is: AT&T says the ability to build an addressable ad product for its DirecTV and DirectTV Now customers was one of the driving factors in its decision to buy Time Warner last year for $85 billion.

"The advertisers that I talk to, they’re interested in taking a big leap into data, which means, we’re not buying 18-49, we’re not selling 25-54, we’re buying consumers who have shown the proclivity to be heavy purchasers of frozen entrees to a company like Conagra."
— Jon Steinlauf, chief U.S. advertising sales officer at Discovery, talking with Axios at the National Association of Television Program Executives event in Miami Wednesday

How it works: TV networks and providers (cable and satellite companies or digital TV companies like Hulu) are using data from set-top boxes (the boxes you get from your cable company with the blinking lights), combined with data from digital networks (produced as you browse the web), to target ads to you that you might like.

  • The beauty of these ads is that they tend to cost less because they reach a smaller, more targeted group of people.
  • Because of this, smaller businesses can afford to buy national TV ads for the first time, lowering the barrier of entry to TV marketing.
  • As a result, users may start seeing TV ads from brands that they would normally only see on social media, like Dollar Shave Club, as well as ads from legacy brands, like Target.

Be smart: The TV industry knows it needs to make ads more innovative so it doesn't continue to lose viewers to ad-free services, but the short-term business calculus isn't always attractive.

  • Addressable ads can be harder to sell at scale, because they have to be offered in smaller, more targeted increments.
  • This means that in the short term, it could be hard for networks to match their profits from selling more expensive ads that aren't customized, but reach a lot more people.
  • And for companies that have very general products, like toilet paper or toothpaste, broader ads may be more efficient to buy, anyway.

The bottom line: Personalized TV ads are the next big thing, but it will take some time before most TV ads are sold this way.

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