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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.
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!
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
CTV (connected TV) refers to the physical device used to stream content online, like Smart TVs or streaming sticks, whereas OTT (over-the-top) advertising refers to delivering video content via the internet across any device.
The primary OTT monetization models are subscription video on demand (SVOD), transactional video on demand (TVOD), advertising-based video on demand (AVOD), and hybrid models that combine these approaches.
OTT and CTV offer better data for targeting and greater control over ad placements compared to traditional TV advertising. They’re also resilient to privacy changes, making them popular and effective marketing tools.
Key challenges include combating ad fraud, such as device spoofing, and the relatively passive nature of OTT viewing, which may make it harder to drive direct clicks.
OTT and CTV advertising are projected to grow rapidly, with a 10.75% annual growth rate, reaching a market volume of $207.30 billion by 2027. Viewers are also willing to watch ads on CTV, especially if they’re personalized, presenting a strong opportunity for marketers.
