The Takeaways:
- 160 million Americans stream on connected TV every month, and connected TV (CTV) has grown by more than 300%. However, as it stands, CTV advertising only accounts for 1% of television advertising dollars.
- According to e-Marketer, 55.1 million people will no longer watch traditional pay-TV by 2022.
- Roku, the first CTV-focused device on the market, was the top CTV platform in the US last year with 84.7 million users. E-marketer estimates that the platform will make up 46.9% of CTV users in 2020.
The Trends
Consumer migration to Smart TV’s and OTT devices is strong and growing: Connected TV advertising one of the fastest-growing industries. There are currently 23.14 billion connected devices in the world – 3x more than there are people. These figures are expected to grow significantly as currently only half of the U.S. population uses an OTT device.
Free-streaming services are overtaking subscriptions: Free streaming services are growing at more than twice the rate of paid services. According to IAS and Digidays research, 78% of consumers are willing to see ads in exchange for free video streaming service.
The main players: YouTube was the primary recipient of CTV ad dollars in 2019, accounting for about 40% of US CTV ad spending that year. Hulu and Roku came next, together accounting for about 30% of CTV ad spending.
How does advertising on CTV work?
- Ads appear before and during streamed content, generally lasting between 15 to 30 seconds in length.
- CTV administers these ads when users are most willing to experience an advertisement to be able to watch the content.
- TV premium advertising space requires companies to pay a higher CPM (cost per mille) or a specific price floor. These prices can be between 3 to 5 times higher than standard video placement. While CTV is not the cheapest option per-unit, it generates much higher outcomes in terms of video completion rates. This in turn means more views with better impressions.
The Potential for Advertisers
High-quality ads: Connected TV supports targeted, personalized HD-quality ads with full screens and stereo sound. High-quality ads = higher exposure and brand loyalty. Marketers can experiment with original and entertaining formats, including interactive video, call-to-action, static, and animated ads. Drives consumer engagement.
Market potential: Advertising on CTV is a relatively untapped market compared to its more traditional counterparts. There is a large gap between consumer time spent with OTT (27%), and advertiser spend dedicated to OTT (3%).
Targeted ads: CTV viewers are required to login with a Google or Facebook account, so third-party data that is collected allows for more precise segmentation. This allows advertisers to reach more receptive audiences with messages that are relevant to them personally.
Greater viewer satisfaction: Studies reveal that over half of OTT subscribers are willing to sit through a video advertisement to continue watching a show, compared to 86% of viewers who skip ads on traditional television. This receptiveness is partly due to better targeting offering more engaging ad offerings to viewers. On free streaming sites, viewers understand that ads are now the price of low-cost platforms.
The Caveats
Despite increases in adoption, subscriptions, and platform options, advertisers have been slow to shift linear television budgets entirely to CTV.
The primary reason for this hesitation is the absence of a “universal measurement system” for CTV ads. CTV does not use cookies or device ID’s, making measurement a difficult task. This means it is difficult to ascertain audience size and makeup across various apps and devices. Until more concrete structures are created for standardization across industry players, billions of advertising dollars may continue to hold back.
The Future
As subscription-based services such as Netflix and Hulu continue to grow, we may reach a point when that market is saturated. This would likely lead to a shift towards ad-supported models for content. In this case, advertising revenue will continue to play an important role in the next evolution of TV.
