CTV vs. OTT advertising: what you need to know
Jon Snow, Eleven, Walter White… These names have become part of our pop-cultural landscape.
With billions of hours of binge-worthy content available at our fingertips, streaming services are making the world go round. And whether it’s down to the accessibility of high-speed internet or the content-binging behavior that we’ve latched onto during COVID-19 lockdowns, the streaming wars have sparked a new innovation in marketing: CTV and OTT advertising.
In this guide, we’re going to cover everything you need to know about these two acronyms. The history, their meanings, and most importantly, their unique role in the digital advertising ecosystem.
CTV and OTT explained
Marketers keep using the words CTV and OTT. But do you really know what they mean?
If you’re unsure, then you’re not alone — in fact, the two terms are often used incorrectly. Let us clarify!
What is OTT?
Over-the-top, or OTT for short, refers to digital content such as video and music streamed on TV, mobile, tablet, and desktop devices via apps or websites. The term originates from digital cable boxes that once sat on top of televisions — and also reflects the fact that it goes over the top of traditional cable providers.
But be careful. There’s a clear distinction to be made between OTT devices and OTT platforms.
CTV devices are those you use to consume streaming content, excluding desktops, laptops, mobile devices, and tablets. In other words, the term covers things like Smart TVs, Apple TVs, Chromecast, Amazon Fire Sticks, gaming consoles (Playstation, Xbox), and Roku.
OTT platforms are the services that provide the content to stream, including Netflix, Disney+, Pluto TV, Hulu, Tubi, Peacock, Paramount+, Apple TV, and more.
OTT has really taken off in recent years thanks to wider internet access and more affordable technology. OTT advertising, which we’ll dive deeper into later, is also a result of advances in machine learning and AI technology, making it possible to deliver video ads automatically, dynamically, and most important of all — quickly.
What is CTV?
A connected TV, or CTV for short, is the physical device a customer uses to watch and stream video content online. There are three categories for CTV: it could be a Smart TV, a gaming console, or a streaming stick like Amazon Fire Stick or Chromecast.
What’s the difference between CTV and OTT?
OTT is the umbrella term that covers the delivery of video content via the internet with any device. CTV refers to the physical device that delivers the video content, like the Amazon Fire Stick, Apple TV, Roku, or Chromecast.
The history of CTV and OTT
Sharing fond memories of visiting your local Blockbuster every weekend is a surefire way to show your age. The birth of CTV is often attributed to the arrival of Netflix, and its role in driving Blockbuster out of business in 2007. But there’s more to it than that, if you’re ready to dive a little bit deeper into the history of digital streaming.
TiVo ran so Netflix could run
In 1999, TiVo launched a digital video recorder (DVR) that allowed users to record, pause, and fast-forward through their favorite TV shows. This led to the innovation of set-top boxes, which were adopted by every television network by 2009.
In the late 90s and early 2000s, PCs and the internet became much more widely available. The first concert (by Severe Tire Damage) and the first baseball game (Yankees vs. Mariners) were streamed on the internet during this time.
Streaming came in a Flash
Soon after that, Adobe Flash paved the way for video streaming through video-hosting websites. In 2005, Steve Chen, Chad Hurley, and Jawed Karim launched YouTube, which was then powered by Flash Player. In just a few months, they served 30,000 views per day and surpassed 25 million just a year later.
The start of the streaming wars
In 2019, on the tail end of the so-called second golden age of television and the post-network era, the streaming wars began. This phase marked the monumental behavioral shift from traditional cable watchers to cord-cutters, prompting a rush of networks pushing video-streaming services to offer exclusive video content, deter piracy, and most obviously, sell ad space.
Then came the ads
Naturally, as streaming subscriptions ballooned, marketers were quick to jump on board. Major strides in programmatic advertising have made the automation of buying and selling ad placements on streaming platforms easier and more effective than ever before.
The 12 major players in the OTT and CTV ecosystem
- Broadcasters or OTT platforms provide exclusive streaming content (Netflix, Hulu, Disney+, Discovery+).
- Connected devices or OTT devices are physical devices that enable streaming through your screens (Chromecast, Roku, Amazon Fire TV Stick).
- Smart TVs have streaming capabilities baked into their hardware (Samsung TV, LG TV, TCL TV).
- Mobile Measurement Partners (MMPs) are third-party partners that help advertisers accurately measure campaign performance and combat fraud.
- Supply-side platforms (SSPs) are software solutions that manage the advertising exchange from the publisher’s side — including selling ad space, optimizing deals, and measuring campaign performance.
- Demand-side platforms (DSPs) are programmatic tools that facilitate ad buys and provide inventory in a single interface.
7. Advertisers pay to advertise their product or services.
8. Publishers and networks sell advertising inventory. This includes broadcasters, OTT platforms, and CTV devices.
9. Agencies act as the middleman to manage, optimize, buy, negotiate, consult, and sell ads on behalf of advertisers.
10. Ad servers enable the execution of serving and managing ads. Examples include DoubleClick, INNOVID, Sizmek.
11. Viewers are the content consumers who are watching the videos where the ad is being shown.
12. Aggregators are services that hold on to large inventories across multiple platforms to sell ad inventory in bulk.
OTT monetization models
OTT advertising has come a long way to create a seamless and personalized experience. But how do advertisers make money from it? If you look under the hood, you’ll find four main business models that determine ad content, pricing, and audience.
1 . SVOD (subscription video on demand)
The first model is SVOD, or subscription video on demand. The most popular model, this one allows subscribers to watch unlimited content for a flat fee each month. Netflix, Amazon Prime Video, Apple TV+, Hulu, HBO Max, Disney+, and Sky all follow the SVOD model.
SVOD is enticing to consumers because there are no long-term contracts. Publishers are incentivized to invest in binge-worthy and exclusive content, to drive subscriber growth and minimize churn.
2. TVOD (transactional video on demand)
Transactional video on demand (TVOD) is a pay-per-view system, where consumers pay a fee for one piece of content like a movie, a live boxing match, or an exclusive TV show episode. TVOD has two subcategories:
- Electronic sell-through (EST) — pay once and watch the content unlimited times.
- Download to rent (DTR) —pay less, but watch the content within a limited time window.
3. AVOD (advertising-based video on demand)
AVOD is a freemium or discounted service, which generates its revenue purely from advertising. AVOD viewers are served personalized ads at a frequency similar to traditional TV. DailyMotion, Pluto TV, Tubi, YouTube, and 4OD use this model.
4. Mix and match
Most of the leading streaming services or OTT providers are adopting a hybrid approach, striking a balance between providing a vast content library at a monthly rate and offering exclusive pay-per-view content on top.
Benefits of CTV and OTT
CTV and OTT have a lot going for them, especially when pitted against traditional television. From the wealth of first-party data to the speed of ad delivery, OTT and CTV advertising is improving by the day.
More data, greater precision
OTT advertising technology offers advertisers the data they need to reach users based on their demographics, interests, context, time of day, device, and geography. Linear TV, on the other hand, relied solely on general Comscore and Nielsen data that had huge margins of error and, at best, served top-of-funnel campaigns.
Cut out the middleman
Advertisers now have more control over the placement of their advertising by deploying OTT campaigns in house with DSPs. Whether it’s choosing which shows to appear in or which viewers to aim for, programmatic technology enables advertisers to choose their placements, quickly and within their budget.
Versatile amid changing regulation
Privacy changes are impacting the way data is managed and gathered, but CTV has proved resilient in the face of changing regulation. That’s because CTV doesn’t rely on cookies or IDFA, which makes its first-party data incredibly valuable for advertisers.
Challenges of CTV and OTT
In the grand scheme of digital advertising, CTV and OTT are fairly new kids on the block. And, while they show a lot of promise, there are some drawbacks to consider before putting all your eggs in the streaming basket.
Combating ad fraud
The ad-tech infrastructure to support the massive shift in demand from traditional TV to CTV and OTT advertising hasn’t been entirely leak-proof. There is still a lack of safety nets and regulation, which creates a ripe opportunity for fraudsters, despite improvements in recent years. Fraud comes in the forms of device spoofing (impersonation), multiple device spoofing, and SDK hacking.
Building awareness, but not clicks
OTT content is viewed fairly passively, whether that’s binge-watching on the couch or on the second monitor during work hours. This makes it more difficult to drive clicks compared to a more engaging platform like mobile gaming ads. However, advertisers may counteract this by measuring brand lift in accordance with when ads are shown.
Ad offerings are still maturing
While Netflix’s ad-supported tier steals most of the headlines, the advertising technology at Hulu+ remains the leader in the space. However, advertisers are still finding some limitations in diverse advertising offerings while OTT platforms continue to invest and build out their ad products.
What’s the future of OTT and CTV?
OTT and CTV consumption isn’t slowing down, which presents a golden opportunity for advertisers. But how long can this growth be sustained? And how can advertisers be supported effectively through the growing pains? To tackle these burning questions, here are a few of our predictions for OTT and CTV.
98% of brands believe CTV advertising will be bigger than mobile advertising
According to our 2023 CTV trends report, 98% of brands believe CTV ads will overtake mobile advertising to engage with new audiences, increase engagement levels, and capitalize on higher LTVs. The biggest draw, though, is CTV’s measurability, which comes at a premium at a time where mobile targeting is challenged by ongoing IDFA-restrictions.
OTT revenue isn’t slowing down any time soon
Statista estimates that the annual growth rate for OTT advertising is 10.75%, with a projected market volume of $207.30 billion by 2027. This is based on the fact that revenue in OTT is projected to reach $137.80 billion in 2023.
Consumers are willing to see ads on CTV, especially if they’re personalized
According to our 2023 CTV trends report, only 14% of consumers are willing to pay for ad-free CTV, regardless of price. 30% don’t care about ads at all, and 26% will stop watching if ads are added. On average, consumers are willing to watch 1.8 ads within 30 minutes, but that goes up to 5.8 ads if those ads are highly personalized.
- OTT (over-the-top) is the umbrella term that covers the delivery of video content via the internet with any device. CTV (connected TV) refers to the physical device that delivers the video content.
- Connected devices and OTT devices are synonymous.
- The primary OTT ad models include subscription video on demand (SVOD), transactional video on demand (TVOD), advertising-based video on demand (AVOD), and a hybrid model.
- From the wealth of first-party data to the speed of ad delivery, OTT and CTV advertising is a major leap forward for advertisers who traditionally invested in linear TV.
- Advantages of OTT and CTV advertising include more and better data, which enables greater personalization of ads without falling foul of privacy regulations, and greater control over ad placement.
- The major drawback to OTT and CTV advertising is the existence of ad fraud in the form of device spoofing (impersonation), multiple device spoofing, and SDK hacking.
- OTT advertising is to grow at a rate of 10.75% per year, reaching a projected market volume of $207.30 billion in 2027.