Why isn’t my CTV/OTT investment working as hard as other media channels?

Consumers are shifting their viewing from broadcast and cable to streaming services at a breakneck pace. Total viewing of steaming services is now approximately 36% of total TV viewing – more than total broadcast or total cable. Share of viewing to streaming services is even higher among younger audiences, representing approximately 60% of total video viewing among people under 35 according to Nielsen.

The pandemic accelerated the migration of viewership. The recent writer’s strike further accelerated the shift as well as increasing cord-cutting, as the traditional networks were handicapped by a shortage of new, original scripted programming.

U.S. OTT subscription revenues are on a path to overtake pay TV (cable) revenues by 2025. According to eMarketer, OTT subscription revenues are forecasted to be approximately 53% of all TV subscription revenue by next year.

There is no debate that consumers have embraced streaming services as their preferred source of video entertainment viewing. The main force slowing down the demise of linear television is live sports and news, but even that is changing. Three of the major network groups (Disney, Fox, and Warner Brothers Discovery) recently announced the formation of a new sports-focused streaming service. Peacock set a new record for the largest streaming audience for NFL football with the AFC wild-card playoff game between the Miami Dolphins and Kansas City Chiefs in January with 23 million viewers. Viewing to Amazon Prime’s Thursday Night Football was up +24% year over year this past season.

Advertising dollars are shifting from linear to streaming at an even more rapid pace than viewership is shifting. While viewership is increasing by approximately 7% in 2024, advertising revenues for streaming services are forecast to increase by 16-17% according to eMarketer.

On top of overall macro trends in viewing and advertising spending, CTV/OTT offers much more precise targeting opportunities than linear TV. Virtually all the same targeting data that is used for digital display and digital video campaigns can be applied to CTV/OTT when activating programmatically.

Shifting ad dollars from linear to streaming, following consumers as their viewing habits evolve, seems like an obvious move for major marketers. And yet many advertisers are asking the question “Why am I not seeing a better ROI/ROAS for my CTV investment?” The expectation is that following consumers as their media habits change and applying better targeting SHOULD result in better results.

Measuring CTV/OTT impact is a challenge.

There are many attribution models in the market being applied to CTV/OTT. Unlike digital display and OLV, we can’t rely on standard digital metrics to evaluate success. There is no click-through rate or cost per landing page visit to gauge what’s working in streaming video. Some advertisers are starting to incorporate QR codes into their ads on CTV to provide some form of response.

These approaches may work for eCommerce or direct-to-consumer digital campaigns. But the bulk of video spending by major advertisers is more focused on driving upper-funnel metrics such as awareness and consideration. The campaigns are designed to change perceptions of the brand or service which ultimately leads to sales.

Many “brand building” marketers rely on marketing/media mix models to determine the relative ROI or ROAS of each channel in the media mix. What many marketers who use these models are shocked to discover is that the model shows lower ROAS for CTV than for good old-fashioned linear video. They are asking the question “Why isn’t it working?” When they look at their competitors increasing their spending, they wonder “What do they know that we don’t know?”

CPMs matter.

To fully understand why CTV isn’t performing as well as other channels, it’s important to deconstruct the elements that go into the ROAS estimates in a media mix model. In simple terms, ROAS is made up of two components: lift and cost. These need to be evaluated independently from each other. How much lift or incremental sales are attributed to CTV, without regard to cost? How much lift are you getting PER IMPRESSION? How does the lift compare to other channels?

What many marketers discover when they look at it this way is the lift for CTV is as strong, if not stronger than linear TV. What brings down the overall ROAS is the cost (CPM) they are paying for CTV relative to linear TV. In many instances, especially if their CTV investment is skewed towards the most premium, high-profile streaming services,they are paying 3-4x the CPM of linear. In that situation, CTV would need to work 3-4x as hard to deliver the same ROAS as linear TV.

CPMs have come down significantly in the last several years as supply of advertiser supported streaming inventory has increased, even on the most premium platforms. The CPMs of a “backward looking” media mix model may not be reflective of what can be achieved going forward, even with the same vendors. And of course, there is not only a wide range of streaming platforms to explore to improve CPMs, but CTV can be done very efficiently programmatically, acquiring inventory via exchanges and various private marketplace deals.

It’s important to consider what the most premium platforms are delivering that can’t be achieved through more efficient platforms. Less familiar platforms such as Tubi and Pluto are capturing a significant share of overall viewing and growing. Based on Nielsen data, viewing to Tubi, which is 100% ad supported, has surpassed Max, Roku, and Paramount+. And some marketers overlook the fact the YouTube is the biggest streaming TV platform, bigger than Netflix, Amazon, or Hulu, capturing 8.6% of total TV viewing according to Nielsen.

Shifting dollars to more efficient options can significantly improve ROAS for CTV.

Reach matters.

CPM is not the only “lever to pull” to improve performance of CTV. Reach is an important consideration and deserves scrutiny at a granular level. In the increasingly fragmented (some would say “atomized”) video landscape, cobbling together the right mix of linear and digital options to maximize reach is one of the biggest challenges.

Optimizing reach is one of the issues at the heart of the discussion about new measurement options. Historically, it has been difficult to look at reach across all video platforms holistically, including not only linear and streaming services but also YouTube and video on social platforms such as Meta. But recent developments in alternative measurement platforms have made more holistic reach and frequency possible.

Just looking at the overall subscriber base or reach potential of each platform doesn’t provide the insight needed to understand the contribution of each element of the video mix. In addition to the fact that those figures include NON-advertiser-supported viewing on some platforms, advertisers need to understand how their specific mix delivers from a reach perspective.

Marketers need to ask what unduplicated/unique reach is each component of the video mix contributing. Looking at the level of frequency within each component is important as well. Often, to reduce/control CPMs, dollars get shifted to the most efficient options (networks, platforms). This can result in excessive frequency within a single platform or network. Excessive frequency can actually reduce the lift and ROAS of individual components of the video mix.

The incremental reach of CTV can be further improved using ACR data to ensure that consumers already reached with sufficient frequency via linear video are excluded from the delivery for the CTV elements of the mix.

Linear TV is not dead.

For all of the headlines about cord-cutting and the shift of ad dollars and viewing to streaming, it’s easy to lose sight of the fact that linear TV (broadcast and cable) still captures more than 50% of total TV viewing. And in many instances, depending on the target audience, linear is still more efficient than streaming, even with some of the suggested shifts discussed above. Marketers with very modest budgets should try to maximize reach within the most efficient view options before investing in more premium price options.

Examine closely and ask the right questions.

The CTV/OTT landscape is still “the wild west” of the video world, but it should be part of the mix for most video advertisers. Careful, ongoing scrutiny of the video investment is essential, however. The landscape continues to evolve rapidly. New entries coming on board and seismic shifts, such as Amazon Prime converting all subscribers to an ad-supported model overnight, are happening throughout the year. What worked successfully last year may not be as effective this year. But with the right “due diligence”, CTV should be an increasingly valuable part of the media plan. As usual, caveat emptor.