July 30, 2020

Over-the-top streaming just had its largest quarter of growth in Q1 2020, yet many brands are having trouble finding success on this emerging platform or not investing at all. It is the fastest growing channel by ad dollars in the US and has recently gained the largest share in time spent viewing of any channel across all ages. The data shows OTT is changing the way consumers view video content and provides advertisers a familiar way to plan and reach them.

OTT suffers from too many acronyms and little agreement on definitions. The Interactive Advertising Bureau (IAB)[1] defines OTT as any and all viewing of video content served over the internet (and not through cable / satellite provider), bought through programmatic buying methods and can target consumers, not households, directly through 1st and 3rd party data integration. Hulu on a TV or an Amazon Fire Stick, ESPN+ on an iPad, and Disney+ on a phone are all delivered through Over-the-top. It is commonly confused with Connected TV (CTV), which is merely the device (the TV set itself) OTT content is viewed through, such as a Samsung or Sony TV connected to the internet.

According to Comscore State of OTT[2] research, 71% of all households in the US have a connected TV and there are over 73 million ad-supported OTT homes in the US.

OTT has seen its largest two growth quarters in H1 of 2020 with over 14 million subscriptions added. On the other hand, linear TV has seen its largest decline in history with 2 million subscribers lost in the Q1 of 2020. In advertising terms, Pay-TV ad spend will drop to 25% of total ad spend by 2025 from 70%+ a decade before.

What is driving this decline in linear TV viewers? Content and cost are the big drivers to cord-cutting (cancelling cable/satellite subscription), as providers such as Netflix and Hulu provide exceptional shows and offer live TV at a far reduced rate without the hassle of set-top boxes/infrastructure. Even among cord keepers (those with cable/satellite connection), 40% consume their content from OTT providers, so there’s duplication in the audience, but also huge incremental audiences to be had.

Connected TV ad spend has been growing 20% per annum[3] and it’s no surprise as eMarketer May 2020 study notes a 23% increase in time spent with OTT in 2020[4]. With consumers taking in over 1 hour of OTT per day, it is the third most consumed media channel across all ages.
Why are brands struggling to find success here?

If all the data points towards the consumer shift in behavior, time spent with OTT and advertising dollars leaving linear TV, why is ad spend of OTT lagging at only 4% of total media spend and why are brands having trouble finding success here?

For many brands investing in OTT, there are a few challenges keeping both brands and marketers from moving spend from linear TV into OTT:

  1.     Role of OTT within the media funnel – Is it top/bottom-funnel? Marketers are not using the plethora of data to target within OTT, instead using it purely top-of-funnel to complement TV.
  2.     Where does OTT buying fit in the agency structure – Does it fit with the digital agency or offline agency? Is it direct or programmatically bought? In many cases, it’s done across all three and agencies with financial interests promote ways of buying over another purely for profit.
  3.     Rampant over-frequency across providers – Due to buying complexity and frequency capping restrictions when OTT is bought across providers, media parameters cannot be met.
  4.     Common currency across TV and OTT – GRPs vs CPMs
  5.     Fraudulent inventory, viewability, etc. – With over 25% of all OTT inventory claimed as fraudulent, third-party tracking is playing catchup with OTT and reports from media partners can’t be trusted.

For many brands the challenges proliferate as more spend is carved into the channel, which puts additional pressure on measurement and accurate reporting across providers.
How do brands win here?

First and foremost, it is imperative brands address the following if they are investing (or planning to) in OTT:

  1.     Align on where OTT fits within the marketing funnel. OTT can achieve both reach high up in the funnel as well as targeted return-on-investment approaches lower-down in the funnel and a broad-based understanding of OTT’s place in efforts are key for how the channel and partners are used
  2. Secondly, put pressure on the process and people running OTT to address the following:

            a.   OTT provides the opportunity to reach incremental audiences outside of linear TV, so as its priority goal it should maximize incremental audiences via deduplication of existing linear TV plans through a 3rd party data provider or tool. Building the OTT plan using a linear TV schedule as the base is imperative to incremental reach. Without this, linear TV advertising will be duplicated and create over-frequency instead of reach.

           b.    Consolidate OTT providers within one DSP where possible and focus on the following key levers:
                   i.     Manage frequency caps across inventory by user
                   ii.    Add 1st and 2nd party data to create audience targeting outside of only demo-based TV targets, aligned with OTT goal
                  iii.    Ensure all brand safety is implemented and tracked across all inventory sources and providers and demand reporting
                  iv.    Where walled gardens are being used (Amazon), manage hands-on and implement deduplication of audience across other OTT buys

Bain & Company has put together a rigorous test-and-learn approach mitigating the downside and opening up the upside for OTT spend. This is because legacy measurement approaches like MMM simply don’t provide granular enough insights across OTT to meaningfully and dynamically optimize.

OTT demands the time and investment from brands to ensure the complicated, fast-moving landscape of providers and opportunities are capitalized on and set up correctly. When guided in a test-and-learn approach, brands scale safely and are more adaptable to this changing landscape as consumer video viewing habits change. Brands who don’t guide in a test-and-learn approach can expect millions of wasted ad-dollars in over-paying on CPMs, as well as high over-frequency across TV, frustrating consumers and leading to inefficient spend. Layering on providers and incorrect technology plus ad-fraud and quality inventory concerns, it could become very difficult to untangle through upfront or contractual agreements, leaving brands stuck in a setup counterproductive to their objectives for video.

While specific recommendations will depend on the brand/vertical as well as the strategy of what the brand is trying to achieve, the best step to take is to conduct an audit to identify the gaps between the brand site current state and ideal state. Marketers will find through Bain & Company’s objective viewpoint on the ecosystem, without a proverbial “horse in the race”, we provide a look at the holistic technology, marketing funnel and techniques applied to provide recommendations for improvement an alignment to marketing objectives.

 
[1] IAB https://www.iab.com/insights/advanced-tv-matrix-a-market-snapshot/
[2] Comscore state of OTT - https://www.comscore.com/Insights/Events-and-Webinars/Webinar/2020/State...
[3] E-Marketer adpsend 2019 https://www.emarketer.com/content/us-connected-tv-advertising-2019
[4] E-Marketer time spent 2020 - https://content-na1.emarketer.com/us-time-spent-with-media-2020

 

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