The week after Labor Day traditionally marks the beginning of the fall election season, with campaigns rushing to get their message on the airwaves before the November midterms. And this time around, cord cutters won’t be spared from the ad onslaught.
Campaigns from both sides of the aisle are expected to spend $1.2 billion on streaming ads this midterm season, according to recent estimates from analytics company Kantar. “Connected TV is really the big story in political advertising this year,” said Grace Briscoe, SVP of client development at Basis Technologies, a Los Angeles-based ad and marketing software company. “Every campaign we're working with, up and down the ballot, even small state legislative races [and] mayoral races, they're all looking to explore connected TV.”
That’s a welcome reprieve for the streaming industry, which has seen spending on ads slow down due to supply chain shortages, late-pandemic uncertainties and inflation woes. The surge in political ad spend is also giving political campaigns a chance to target audiences that have long eluded them, and it’s setting up these operations for a quickly approaching post-cable future.
“Anywhere from one in three millennials to as many as half of Gen Z adults report they no longer have linear television services,” said Samba TV SVP Dallas Lawrence, who used to work in Washington, including at the White House, before joining the ad tech and streaming industry. “These voters are 100% unreachable by traditional TV campaigns, and they are turning out to vote in ever-greater numbers.”
Streaming ad spending is up 15x
Not too long ago, political advertisers all but ignored streaming. “Political campaigns are traditionally pretty risk-averse,” Briscoe said. “They're usually slow to adopt new things.” That’s largely due to the cyclical nature of a business that measures every new campaign against prior ones. “If you're a political consultant, you do what you did last time, and the time before that, and the time before that,” she said. “You don't mess with a formula that works.”
Until it doesn’t, that is. Ad spending is increasingly out of touch with how people actually watch TV, which became obvious during the 2020 election. “In the critical final month of one of the most expensive Senate races in the country, 90% of all political TV ads reached the same 55% of voters,” Lawrence said. By focusing solely on cable and broadcast TV, campaigns effectively ignored nearly half of the electorate. “For younger voters, [streaming] is really the only way to reach them,” Lawrence said.
Some campaigns have finally woken up to this new reality, with Basis Technologies seeing a 15x increase in the money spent on streaming ads during the first six months of this year, compared to the same time span in 2020. “We're seeing this dramatic shift of connected TV spending this year,” she said.
Basis isn’t the only company noticing campaigns moving toward streaming in a big way. “This year, we're seeing a very large swath of advertisers relying on [streaming],” said Mark Jablonowski, the CTO and managing partner of ad network DSPolitical. The company, which primarily works with Democratic and progressive campaigns, has seen connected TV ad budgets swell to 20% compared to mid-single-digit spending just two years ago. “It's becoming a very big thing,” Jablonowski said.
More ad inventory leads to better targeting
One reason for this trend is the growth of ad-supported streaming. Back in 2018, Hulu and YouTube were the only two major players in the streaming space that sold ads, and Hulu long restricted political advertising.
Since then, Viacom has acquired Pluto TV, Fox has bought Tubi and NBC Universal has both bought Xumo and launched Peacock with an ad-supported tier. HBO Max launched its ad-supported tier a year ago.
Advertisers have been missing the cord cutter market.Image: Christopher T. Fong/Protocol
All the activity has led to a lot more inventory being available to political advertisers, which allows them to more precisely talk to constituents in individual markets. “This is the first year where we're able to offer connected television individually targeted at scale,” Jablonowski said. “It's a big switch in the industry.”
It’s a shift that isn’t lost on the major media companies. Paramount Global CEO Bob Bakish specifically called out Pluto as one of the services benefiting from this year’s midterm spending on his company’s Q2 earnings call; NBCUniversal CEO Jeff Shell also acknowledged that streaming will play a growing role in bringing in those political ad dollars. “We expect some pretty strong results from Peacock in the coming fall,” Shell recently told investors.
Roku CEO Anthony Wood echoed those remarks. “We expect political [advertising] to continue to grow, continue to be an important vertical for us," Wood recently told investors. At the same time, Wood acknowledged that his company can’t fully benefit from the height of the campaign season just yet. “Political advertising tends to be in certain, very high-demand, localized markets,” he explained. “And so, even though we have a lot of scale in a particular market, we'll reach caps fairly quickly.”
In other words: Roku and others simply don’t have enough ad spots to sell yet.
Netflix and Disney+ could change the game
That could change in a matter of months: Toward the end of this year, Netflix plans to launch ad-supported plans for its respective streaming services. A Netflix spokesperson declined to comment on whether the company would allow political ads. Disney+, which also plans to launch an ad-supported tier later this year, will not accept political ads “at launch,” according to a Disney spokesperson.
Disney has been justifying its resistance to political advertising with the goal of keeping Disney+ family-friendly. However, the service has been evolving from its family-focused roots in recent months, including with the addition of R-rated fare. Disney also recently changed its policies around political ads on Hulu, and there’s nothing that would stop the company from instituting similar changes for Disney+.
“Should Netflix and Disney+ allow campaign spending, it will kick off a land grab unlike anything we have seen in more than a generation of political TV advertising,” said Lawrence. “The ability to combine targeting and measurement insights with the storytelling power of franchises like ‘Marvel’ and ‘Star Wars’ will be a game-changer for political campaigns.”
Until then, limited inventory is likely to drive up prices for streaming ads, which could have ripple effects on non-political advertisers. “I expect that we are going to see some surges in really competitive bidding in connected TV, particularly in states with competitive, high-profile races,” Briscoe said. “If you're a retailer in Texas, it's going to be tough.”
Briscoe expects that some companies will respond to this by temporarily pulling back on ads in certain markets, or just wait out campaign season altogether — unless they are forced to compete, no matter the price. “If you're doing a movie release, you've got no choice … you're going to pay more,” Briscoe said. Until everything returns to normal in a few weeks, that is.
“October is going to be very competitive,” Briscoe said. “But come Nov. 8, all those advertisers are done.”