What to Consider Before Spending on OTT Advertising
Are paid cable and linear TV on the way out? The numbers would certainly suggest it. There has been a massive migration from linear TV packages to subscription-based services, with more than 6 million cable and satellite subscribers cutting the cord in 2019. By 2021, an estimated 50 million people will abandon their cable and satellite subscriptions. In response to this shift, numerous broadcast companies have released their own digital offerings: Disney+, Apple TV+, CBS All Access, HBO Now, and countless others.
Does this mean companies should spend their advertising dollars on over-the-top (OTT) streaming services and abandon linear TV altogether? The answer is not as simple as advertisers might wish.
For one thing, several of the more prominent streaming services are skipping the opportunity for ad revenue entirely. Netflix historically had an ad-free edge over Hulu, but Disney+ and Apple TV+ made big splashes with consumers in 2019. Thus, an audience that was once reachable may now be out of reach.
Even if streaming platforms include advertising, the scale of OTT today is vastly limited. The steep increase in OTT offerings has caused viewing audiences to grow increasingly fragmented. This makes it harder for advertisers to reach audience members because of decreases in scale due to a higher number of smaller inventories, increasing prices because of more granular inventories, higher competition, and a premium on targeting capabilities. As a result, a single dollar of OTT advertising doesn’t stretch as far as it can on cable TV in terms of reach.
U.S. advertisers are expected to have spent $3.8 billion in 2019 and $5 billion this year on OTT advertising. The question is: Will it perform?
Directing Your Dollars
Even with countless consumers cutting the cord, the numbers don’t add up. Based on my experience, OTT advertisements can cost three times more on average and may not reach as wide of an audience as linear TV.
That said, OTT advertising has its place in a media mix. In theory, the increased price means you’re paying a premium for increased targeting ability, which should give you better advertising results. Think about fishing with a $300 sniper rifle rather than a $30 net — you’re going to catch a lot more fish with a net, but they may not be exactly what you’re seeking.
While OTT advertising serves a purpose, it isn’t necessarily a 1-to-1 replacement for linear TV. Not yet, at least — not while linear TV still outplays OTT in American homes.
3 Considerations for OTT Advertising
That said, here are some things to keep in mind if you’re thinking of putting marketing dollars toward OTT advertising:
1. Know Your Goal
Smart marketers should view OTT as supplemental to their linear TV buys. If a brand’s goal is efficient reach and awareness, this supplemental cost might not make sense. If that same brand is targeting direct responses or sales, the heightened targeting capabilities will increase its propensity of conversion. However, heightened OTT inventory costs may inflate cost per acquisition disproportionally to the increases in conversion rates and volumes.
At this point, it’s unclear exactly how the market will play out. When deciding whether to buy OTT ads, however, don’t do it because it’s the latest trend — invest in OTT because those ads will help reach your marketing goals.
2. Identify Your Audience
One of the benefits of OTT is the ability to hypertarget your audiences. If you know you can reach your target audience almost exclusively on OTT platforms, then your spend isn’t necessarily wasted. Meet your audience members where they are — or rather, where they watch. For example, mobile users have historically dominated OTT viewership, although this is starting to shift with the rise of smart TVs.
OTT offers so many new and interesting targeting parameters that it may be worth testing out regardless of your audience. It could help you reach new people in unexpected ways.
3. Consider Scalability
Ads can often reach more people at a lower cost with linear TV, causing purchase conversion rates to appear lower on a client-by-client basis. Imagine that we spent the same amount of money on linear TV and OTT campaigns. Perhaps only 50 people saw our OTT advertisement, but half of those viewers converted to a purchase. With linear TV, we might have 1,000 people see an advertisement but only 10% convert. Even though the conversion rate was dramatically lower with linear TV, it still converted 100 people instead of 25.
Increasing reach and pursuing demographics that are more apt to view streaming content makes sense with OTT-targeted ads. Brands seeking a larger reach and frequency at a lower cost, however, might not find the same value. It all depends on your goals, audience, and scalability.
Consumer Bundling Preferences and Predictions
As traditional TV continues to lose subscribers, networks will pull their programming from bundled offers. Services like HBO, CBS, and Disney have already started to take this step, and networks like NBC are likely to abandon streaming platforms like Hulu — which Disney now controls — in favor of their own offerings.
We may find that this is not what consumers want. I suspect fragmentation will get too convoluted and expensive for consumers, who will pay for a growing list of on-demand subscriptions as time goes on. When the dust finally settles, we will regress to cable-like viewing packages — albeit in a purely digital form.
Executives, buyers, and planners will have to be exceptionally nimble in this rapidly evolving landscape. TV, more specifically advanced TV, is the new Wild West. Traditional networks are clamoring to put out digital offerings while their viewerships jump ship, causing the networks to hold tight to their creative capital as a last-ditch effort to attract more viewers.
As time goes on, advertisers will grapple with new methods of buying and targeting — seemingly on a daily basis. To ensure your ads are as impactful as possible, you’ll have to keep up. In the meantime, brands that aren’t seeking a highly targeted market or hoping to hit the cord-cutting crowd should be careful of overvaluing OTT.
Adam Ortman is the group director of innovation and technology at Generator Media + Analytics, a fully integrated media agency located in New York City. Shari Slackman, the director of television strategy and investment at Generator Media + Analytics, also contributed to this article.