The State of OTT Video Advertising
COVID lockdowns made streaming more popular than ever before—connected TV (CTV) viewing surged, cord-cutting grew, and viewer choice expanded. Yet, according to a survey by The Trade Desk, half of U.S consumers want to cap their spending at $20 monthly for all services. In addition, 27% of U.S. cable subscribers are planning to cut their subscriptions by the end of 2021. These consumers are five times more likely to prefer free or low-cost streaming TV with ads, and 68% choose ad-supported content when looking for something new. This good news is reflected in revenue gains.
The major ad-supported streaming platforms (Roku, Hulu, Peacock, Pluto TV, and Tubi) showed a 31% year-over-year increase to reach $849 million in Q2 2020. Much of this is because of CTV. Tubi's audience has doubled since the streamer's acquisition by Fox, and the growth of ad sales has Fox's top financial executive predicting it will surpass the company's broadcast network revenue in the next 2–3 years. Q4 2020 guidance from fuboTV targeted a 77%–84% revenue increase of $94 million–$98 million over the same period in 2019.
"Consumers are asking themselves, 'Why do I need to pay $200+ a month for a cable box when I can go and plug in a Roku, Fire TV or Apple TV, then pick and choose what I want?'" says Henry Embleton, head of ad products and revenue at Crunchyroll. "The biggest trend has been the shift from linear to connected TV consumption. The accelerated growth of CTV advertising was the most important adtech trend of the past year.
"If we're looking at total revenue generated," Embleton continues, "then obviously subscription business will always be the bigger revenue driver. One doesn't need to fail for the other to succeed," he points out. "These business models can co-exist." In fact, most services have a subscription and ad-supported business, including all of the companies whose representatives were interviewed for this article.
Cord-cutting is growing rapidly, with 27% of all consumers—and 36% of those age 18–34—saying they will drop cable in 2021, according to The Trade Desk.
The Road to CTV Revenue
People prefer watching on the largest screen in the house, and now more than ever, with CTV viewing accelerating, ad revenue follows. "We've seen the amount of growth this year [2020] that we expected to come in the industry over the next 2 to 3 to 5 years," says Tony Brown, chief of staff at Newsy.
Roku read the tea leaves several years ago and created an ad-supported channel. According to Tim Natividad, head of performance advertising at Roku, "It's one of the 14,000 channels available on the platform." He says the Roku Channel is up to a 53 million reach this year, adding, "85% of Americans now stream, and for the first time ever, a majority of U.S. adults report that they now spend more time streaming than watching traditional TV."
"fubo is really a dual revenue model," says Diana Horowitz, SVP of advertising sales at fuboTV. "The core business is the vMVPD business, being a cable replacement product." fuboTV carries "over 170 premium TV channels and 43 of the top 100 top Nielsen-rated networks," Horowitz notes. fuboTV says that 93% of its content is viewed on CTV.
The majority of fuboTV viewers are cord-cutters, and 90% of the viewing is live. In Q3 2020, the service saw monthly active viewers watch an average of 121 hours per month. Over the past year, fuboTV launched a free ad-supported channel called fubo Sports Network. "We do original programming and some additional live sports," Horowitz says.
One goal of ad-supported content is to get customers viewing something new as quickly as possible—there's a low barrier to entry, with no registration information or credit cards needed. Companies with dual revenue models say ad-supported content is a great solution for introducing viewers to new content and gaining customers who otherwise may not subscribe to paid services.
"We do see people that convert into subscribers," says Brown. "I think that is a clear indication from the consumer that there is a big mainstream market for free content which is ad-supported and as long as the ad experience is reasonable."
Other People's Data
Advertising in digital is usually targeted based on viewer data, however, media and distribution companies soon will be required to gain explicit consent to get that data (if they're not already doing so). "You're going to start seeing more requests to opt in when you first visit a site or sign into an app. Something like, 'This provider wants to have access to this information; do you agree or disagree?'" says Michelle Abraham, senior research analyst at Kagan. The opt-out rate to limit ad tracking is currently at 20%, she notes, and will rise as consumers find this newfound control being enforced by operating systems and browsers, as third-party cookies are phased out.
The new privacy requirements have put the consumer/advertiser exchange front and center. While the General Data Protection Regulation (GDPR) has been in place in Europe for several years, a wave of privacy requirements instigated by various browsers, operating systems, and even the state of California has changed the status quo.
Consumers are flocking to ad-supported services and hybrid (subscription and ad-supported) services, according to The Trade Desk.
CTV needs a server-side ad insertion (SSAI) approach. It is a cookieless environment, so many providers are relying on viewers being authenticated to gain data about them. If there are no cookies, device IDs are blocked, and ISPs change, then targeting a viewer is hard. Advertisers don't want to run ads against impressions that they can't target. "In those scenarios, those publishers are running blind and all they can really do is target content," says Larry Allen, VP and general manager of addressable enablement for Comcast.
There are two tracks for attacking this challenge. One is the creation of a universal identifier to provide privacy controls to consumers, while at the same time allowing targeting to keep delivering personalized experiences. The hope is that a universal identifier can win buy-in from all of the various stakeholders.
"The future of the streaming ad business is all about first-party data and direct relationships with the consumer," says Natividad. "Any universal ID without identity is kind of like a passport without a name or an address, and that's really important both to consumers as well as brands."
This identifier needs to have all players in the ecosystem contribute data to make it truly work across all platforms. Media companies will need to ensure they have permissions and provide control to allow customers to specify what they want tracked. "If you run a campaign on Roku and Vizio TV," Allen says, "if Roku doesn't participate, then the measurement is no good. You need completeness."
The next track is a universal ad ID to identify competitive compliance within advertising categories. The reason you're seeing three of the same ads back-to-back is because one ad server has no way of knowing what another ad server has just shown. The million-dollar question is whether or not the industry can agree on a universal ad ID. If you thought content licensing deals were complicated, this challenge is a whole new level.
Without viewers opting in, it's harder to personalize ads as well as content. At that point, the personalization falls back to being more contextual. This is the opposite of what ad executives say they want, but if consumers pull back their data, they have no other choice. Currently, this is based on content placement and existing metadata tags. Look to automatic content recognition to pick up some of the slack here. Contextual advertising driven by machine learning is not yet being used by the companies in this article, however.
Perfecting the Experience Everywhere
Ad tech doesn't always do what it was intended to do. There are a number of reasons for this, whether it's scale, interpretation of industry standards, misalignment of requirements, or technical issues (see "The State of Video Ad Tech" at go2sm.com/adtech2021). Ad tech has never been more important, and anyone who works with it will tell you things need fixing, whether you're involved with OTT, TV Everywhere, linear, or any other permutation.
Privacy, personalization/targeting, SSAI, broadcast and digital systems, and programmatic trading are all drawing the attention of advertisers as well as content providers. "The pandemic condensed several years of growth into just a few months," says Natividad.
Additionally, linear and digital have been in a game of catch-up on various aspects of ad delivery. "If you think about pay TV as where these worlds converge, the bar for television is extremely high. When was the last time you were watching TV and you saw a black slate?" asks Allen, adding, "Digital has always had a very low bar." Slates, bad formatting, audio level mismatch, poor reach, and frequency issues are a few of the typical viewer complaints.
According to FreeWheel, more and more viewers are watching their favorite movies and shows—and ads—on the big screen, whether on a connected TV or via a set-top box.
The IAB is leading the way by focusing on creating standards to help delivery. "The entire ecosystem has gotten better at delivering ads [using SSAI], in part due to the updates and direction provided in VAST4 and the Digital Video In-Stream Ad Format Guidelines," says Amit Shetty, senior director of product at the IAB Tech Lab. "The most common request is to have a consistent set of reports across all platforms." Reports on what was requested, played, and viewed often reveal different numbers.
"We are continuing to work on Open Measurement to help with that goal. Open Measurement is currently supported on mobile [iOS and Android] platforms and the web. Working to support CTV platforms [Roku, Android TV, Apple TV, etc.] will be a priority in 2021," Shetty says.
Ad Terminology
Advertising has its own language. Incremental reach is the ability to extend past the audience that's currently being targeted. Full-funnel metrics are broken down into advertising awareness, consideration, and purchase data. Frequency-capping limits how often a viewer is served the same ad over and over.
Depending on the advertiser, agency, and objectives, KPIs vary. "These can include view-through rates (advertisers want to know if their ad is being watched through to completion) and, depending on the platform, viewability," says Embleton. Advertisers look for third-party measurement from Nielsen or Comscore to confirm audience measurement.
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