OTT (over-the-top) is a method of delivering movies, shows, songs, and other digital content over an existing internet connection instead of using broadcast airwaves or cable boxes.
With OTT, consumers stream media directly from content producers’ apps and websites instead of through a distributor, such as cable, broadcast, or telecommunications providers.
Being over the top is not always a bad thing
If you’ve ever binged a show on Netflix or talked to your sibling on Skype, then you’ve experienced OTT—media that was sent “over-the-top” of an existing cable line.
OTT completely changed the dynamic between media consumers and producers. In the traditional media model, a distributor like a broadcast network, radio station, or cable TV provider bundled content, and played it on a predetermined schedule. OTT, on the other hand, bypasses distributors so consumers can log in to a producer’s app or website and watch / listen to any available content whenever they want.
Without distributors in the way, media creators and marketers have a direct connection with their audiences—and an incredible opportunity to personalize experiences while learning exactly what consumers want.
What is OTT?
OTT is a content distribution channel that uses existing internet connections instead of other methods like cable boxes or radio waves.
That means that we as consumers don’t have to use a traditional content distributor to access our favorite programming. With OTT:
- We choose the device. Traditional media channels require a dedicated device like a TV or radio. OTT-delivered media is available on your laptop, connected TV, tablet, and mobile phone.
- We choose the time. Unlike traditional media, which is pushed out on a linear schedule, you can stream OTT content anytime and in any order you wish.
- We choose the content. A traditional service provider had a program manager who decided which shows, movies, or songs they’d air. With OTT, you get to play any content from any media company’s app or website, based on your personal content preferences.
Additionally, media companies and marketers get a lot of direct feedback as users engage with programming and ads, guiding content production and advertising strategies.
How does it actually work?
Generally speaking, OTT works by media companies placing content on their app or website, and consumers streaming that content through their internet connection.
However, within that broad definition are a few different models:
Subscription Video (or Audio) On Demand (SVOD). Streaming providers like Hulu, Disney+, and Spotify Premium require you to pay a subscription to access their content.
Advertising-Based Video (or Audio) On Demand (AVOD). Crackle, YouTube, and Spotify Free offer freemium content and monetize it by selling ads.
Transactional Video (or Audio) on Demand (TVOD). Providers like Apple iTunes and the Amazon Video Store charge consumers a one-time fee to either rent or own a piece of content.
OTT can also carry phone calls and text messages, with providers like Skype and WhatsApp using advertising or subscription-based models to monetize their services.
OTT content types
OTT is a versatile media channel capable of delivering just about any type of content that can be carried through an internet connection:
Super speedy internet connections made OTT accessible for all sorts of video formats, from full-length feature films to tutorials found on YouTube.
OTT makes it possible to listen to music or podcasts from your phone or even a connected watch. Spotify, for example, is one of the most popular apps in the OTT audio space, with 165 million subscribers.
With an OTT-based messaging service, you get to bypass SMS networks to send texts directly over the internet. WhatsApp is a great example for a versatile OTT texting app that’s used by over 2 billion people.
Voice over Internet Protocol (VoIP) lets you place a phone call using your internet connection without paying a telecommunication provider, with Skype being one of the most recognizable examples of VoIP in practice.
The benefits of OTT advertising
OTT video, audio, messaging, and VoIP platforms can all be supported by advertising. That’s great news for us marketers since OTT ads offer fine-grain targeting of an engaged audience and improved analytics compared to traditional advertising.
OTT ads play when a single person streams a piece of content. That allows marketers to set niche audience targeting for attributes like interests, location, and demographics.
On the flip side, everyone in a broadcast audience sees the same ad as it airs during a program. At best, those traditional ads are targeted at city-sized geographic areas. That’s a lot of people viewing an ad that may never care about the product to begin with.
The video completion rate for OTT ads hovers north of 80%. Why so high? In part, it’s because many OTT ads aren’t skippable. But even the ones that are – are more relevant to the viewer because of tighter targeting.
On the other hand, Digital Video Recorders (DVRs) gave TV watchers the power to fast-forward through commercials, which helped fuel a trend where more than half of live TV viewers now say they skip every ad. Who said marketing was easy?
Each person who pulls a piece of OTT content from an app is an audience of one. That allows you to learn more about who sees your ads than when a large mass of people views them at the same time.
Also, many OTT ads are interactive. The viewer can click a link or choose an option. Their interaction teaches more about their preferences and can even get them into your marketing funnel for future retargeting campaigns.
Broadcast and cable media providers, on the other hand, can only tell you about the general demographics of the people watching their programs. As a result, it’s difficult to connect individual viewers to engagements with your brand.
OTT industry outlook
In the near future, we’ll see more people with more devices connecting to faster internet connections. Virtually every aspect of OTT shows signs of continued growth for years to come. Here’s why:
Audiences keeps growing
More people are consuming OTT media. That goes for every type of OTT content.
- An estimated 3.3 billion people will view an OTT video in 2025.
- Around 2.3 billion people will use Skype in 2024.
- By 2022, 3 billion people will use mobile messaging apps.
Individually, those are huge audiences worth investing marketing budget to reach. But taken together, they’re a big opportunity for cross-channel promotion since most people will use two or three of the media types above.
Technology keeps improving
Spending on OTT video ads has been estimated to almost double in the U.S. from 2020 ($34 billion) to 2025 ($63 billion).”:
- Nearly 16 billion mobile devices will be operating in the world.
- 40% of homes will have a connected TV.
- The average Wi-Fi speed will be almost 73 Mbps (a 2x increase from 2019).
- 2 billion people will have access to a 5G cellular network by 2022, which is up to 100 times faster than 4G technology.
This trend is a call to all content and ad producers to get creative. Faster connection speeds open the gates to more 3D, virtual reality, and other immersive experiences.
A greater variety of devices requires optimized content that can be experienced on large screens or clicked on touch screens.
Ad spend keeps expanding
Marketers are following the audience, making bigger bets on OTT media while their investment in traditional channels stays flat.
- Spending on OTT video ads will almost double in the U.S. from 2020 ($34 billion) to 2025 ($63 billion).
- Podcast ad spending is headed in the same direction, doubling from 2020 to 2025.
- Broadcast TV ad revenue is predicted to remain stagnant at around $65 billion for the foreseeable future.
With more dollars pouring into the OTT pool, competition will get tighter and costs could rise—a signal to invest in OTT ads sooner rather than later.
The shift from traditional media channels to OTT is in full swing. To make the most out of this trend, remember that:
- Consumers have more power to choose with OTT than traditional broadcast content.
- OTT content isn’t just video; it’s audio, messaging, and voice calls, too.
- Better devices and higher connection speeds will continue to fuel the shift toward OTT and require different types of content.
- A growing OTT audience is good for advertisers, but competition could eventually drive up ad costs.