Connected TV: The challenges and opportunities for marketers

“The Situation is so much cooler now that he’s off drugs and lasagna is his vice instead” is an actual thing that I said out loud last week. We all have our guilty pleasures and yes, Jersey Shore is one of mine. MTV recently rebooted the show after six years, during which the proliferation of connected TV changed the television landscape dramatically. Back in 2009, I watched the original series on MTV; the new episodes, on the network’s Roku app. I don’t even know which night of the week they originally air.

I’m not alone. eMarketer estimates that about 182 million Americans watch connected TV, a term that encompasses smart TVs, over-the-top (OTT) devices like Roku and Amazon Fire TV, subscription services like Hulu, and even gaming consoles. And yet, according to a survey of ANA marketers, only 15% have connected TV in their media plan.

“It’s easy to say, ‘You should be on connected TV,’ but that’s such a broad term,” says Will Felcon, Head of Product & Technology at OTT advertising company Premion. “There’s a lot of confusion in this industry and the fragmentation isn’t helping the lack of understanding.”

Fragmentation: A challenge and opportunity in connected TV

Let’s use Jersey Shore: Family Vacation to illustrate the fragmentation. You can watch the show on MTV and its various apps. Episodes are also available on Amazon Prime Video, Google Play, YouTube, iTunes and Vudu. That totals 14 different channels, discounting pirated content.

Tim Sims, Senior Vice President of Inventory Partnerships at The Trade Desk, points out that the fragmentation is both a challenge and an opportunity. While people are watching content from every which way, that also gives marketers a chance to capitalize on one of connected TV’s main advantages: more sophisticated targeting capabilities.

“For the history of TV buying, we’ve been mostly stuck in a world where the transactional currency is age and gender,” says Sims. “One of the big potential tipping points is, you take all the amazing things you can do in digital, like audience targeting, and apply them to TV, which was impossible before.”

Compared with linear TV, connected TV also lends itself to more sophisticated frequency capping and relevant retargeting. Data providers also enable more effective reporting and measuring, telling advertisers where and how many times, and on which devices, an ad was viewed.

An omnichannel look at TV

There’s a parallel between connected TV and ecommerce: perpetually on the rise and particularly popular with younger consumers. Roku’s ad revenue is projected to hit $293 million this year, making the company second only to Hulu in OTT ad sales. According to Nielsen figures, Roku ads have 10.2% greater incremental reach over linear TV among 18- to 34-year-olds.

However, much like in-store shopping, linear still dominates. Traditional TV ad spend may be down year-over-year, but eMarketer still projects it to reach nearly $70 billion in 2018.

“The number of cord cutters continues to grow, but there’s a larger group of people who have linear TV and Amazon Fire or Roku or a smart TV with Hulu and all these apps preloaded,” says Sims. “That’s quite a substantial middle of the curve. We’re still in the early days for what the opportunity is, which is exciting.”

Looking forward

Connected TV is the fastest-growing video segment. And just as marketers are buying more ads there, they’re getting savvier about it.

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Connected TV And Cable TV: Same But Different

– by Philip Inghelbrecht

The march of over-the-top (OTT) and connected TV (CTV) has been unstoppable. The number of OTT and CTV viewers in the US will soon surpass 200 million, or more than half of the US population, according to eMarketer.

This speedy success is not surprising. OTT and CTV bring TV viewers what they have long been yearning for: on-demand and cross-device (courtesy of IP delivery) viewing experiences, to name just two.

Cord cutting is, however, not synonymous with the death of the cable TV industry. Most, if not all, constituencies in the ecosystem may end up better off in this new world.

The viewers

Over the past year, cable networks have built solid CTV offerings to meet cord cutters where they are. Viewers can, for example, watch CNN from their Apple TVs, and Roku offers more than 1,800 channels on its platform.

As a result, people who have ended their cable subscriptions can still enjoy their favorite cable networks and programs through CTV offerings. Furthermore, access to cable TV content via CTV has been a boon to viewers. In addition to on-demand viewing and access from any device, there’s a smaller ad load – at least today – and CTV devices are generally more user-friendly than their cable cousins; use Apple TV for a week then go back to Xfinity, and you’ll see what I mean. If that’s not enough, PlutoTV will pretty much replicate the average $100-plus-per-month cable subscription for free.

Cord cutting is a far cry from losing out on cable content. For TV viewers, OTT and CTV offer mostly the same access to (cable) programs, and often in a better viewing experience.
The advertisers

The shift from cable to IP delivery has been equally exciting for advertisers. Apart from the aforementioned cross-device capabilities, the ad experience is also better.

CTV delivery platforms allow for better ad control, including frequency capping, local targeting at the ZIP-code level and guaranteed delivery, since there is no fast-forwarding allowed, to name just three benefits. Again, many facets are the same or better.

The MSOs

The business model for multisystem operators (MSOs) – the entities that own the cable pipes and offer bundled subscriptions, such as Comcast – is largely intact, too.

For each cord cutter, costs go down on the one hand since carriage fees are no longer applicable. Carriage fees are the amount of money a cable provider must pay the network to carry their signal. It can vary from pennies to dollars per network, for an average of 14 cents per channel and subscriber, according to The Wall Street Journal.

On the other hand, for each cord cutter, MSOs can upsell clients into a faster or more expensive internet package since it takes a little bit more bandwidth to enjoy OTT and CTV at home. If that’s not enough, and to their credit, MSOs have smartly swayed the new OTT platforms to be bundled with existing old-fashioned cable subscriptions. For example, Comcast will now offer access to Amazon Prime Video and Netflix content from one handy Xfinity X1 cable bundle.

Taken together, OTT and CTV are as a possible (future) net positive for the MSOs.

The cable networks

The only potential displaced entities are cable networks. Carriage fees can make up 80% of their revenue, and that revenue evaporates when the cord is cut

One immediate defense for cable networks is to become an OTT platform themselves. For example, AMC launched an OTT platform called Shudder and Discovery launched multiple TV Everywhere apps.

With that, we should expect to see further consolidation in the industry, such as Discovery’s acquisition of Scripps, as cable networks seek strength in numbers. But that’s really where the change ends.

The advertising business model for cable networks is still firmly in the saddle. When, for example, CNN airs on the Roku box, part of the ad inventory will be sold by Turner national ad sales, which owns CNN, and the rest of the inventory will be sold via Roku. There is still a similar split between local vs. national linear cable TV for the two minutes of ad inventory sold for each hour of programming.

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Connected TV Increases Digital Video Impressions

Based on a recent global video report, video marketing platform Innovid says connected TV in 2018 is now at a 27% share of all digital video impressions to date, up from 20% in 2017 and 13% in 2016.

Mobile platforms are at a 45% share — up from 42% in 2017 and 2016. Desk digital video consumption is at 28% — down from 32% (2017) and 45% (2016).

Innovid found a 30% increase in the number of advertisers running messaging on connected TV platforms in 2016 versus 2017.

In working with 21st Century Fox’ true[X] unit on “choice-based” advertising — letting viewers choose between one interactive ad or watching multiple ads in the manner of a traditional commercial break — Innovid says the results showed strong results for marketers.

Looking at over 100 marketers that used choice-based ad units nearly 60% of viewers opted to complete “the engagement” of the ad. In addition, viewers spent more time with the ad — beyond the required time limit.

On Roku connected TV devices, the percentage was 151% higher; with Apple TV, 93%, and smart TV, 37%.

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Connected TV now fastest-growing segment in advertising

Marketers plan to dramatically increase their budget commitments to connected TV (CTV), according to the latest SteelHouse survey of both brand-side and agency marketing professionals.

The survey, conducted by independent consulting firm Advertiser Perceptions, found that more than three-quarters (78%) of marketers surveyed plan to buy ad inventory on streaming TV within the next 12 months and while only 2% of those surveyed said they never used video in their ads, 49% use video frequently, 38% use it occasionally, and 11% use it in all campaigns.

The data also showed that an average of 30% of total advertising budgets are allocated to digital video across multiple channels, with 28% of that going to social platforms, 26% to in-stream, 20% to traditional local or national TV, and 13% to in-unit ads. But the survey found that it was the newest category, CTV, also described as IPTV or OTT, that made the strongest impression, garnering 12% of planned video spend.

The survey also found video measurement was still evolving. The top three KPIs for evaluating video inventory were completion rates (49%), impressions/reach (46%), and quality scores including viewability & fraud (44%). However, SteelHouse found that there were differences between marketers and agencies. Marketers identified impression/reach (48%), completion (47%), and click-through (44%) as the most valued metrics, while agencies chose completion (53%), quality scores (45%), and in-target delivery/GRPs (comScore, Nielsen, etc.). Sales attribution was low for both (28%).

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Connected TV Advertising is Surging

It’s no secret that connected TV devices have made huge gains in the U.S., with penetration at 60% of homes or more depending on the research source. But whereas these devices were initially used mainly for streaming Netflix and other ad-free SVOD services, evidence is building that viewers are also now using these devices to watch ad-supported video, in turn driving a huge expansion of ad inventory.

For example, Roku has been saying for a while that Netflix’s share of overall Roku users’ watch time has been steadily decreasing, with ad-supported channels gaining. And today, Beachfront Media, a video supply-side platform, said that it saw a huge jump in CTV ad requests to over 2 billion in Q3 ’17. Beachfront works mainly with mid-tail and long-tail video providers like WatchMojo, Newsy and Crunchyroll.

Beachfront’s CEO and founder Frank Sinton told me in a briefing that the company has seen completion rates of 97% and viewability of 100% on CTV inventory, the 2 main performance indicators buyers focus on. Measured CPMs are also 3 times higher on CTV than on mobile video and aren’t showing any signs of softening as CTV inventory continues to be in short supply relative to demand.

While CTV combines the best of the big screen experience with the best of digital targeting, Frank said it’s not yet clear to him which budgets CTV spending is coming from, TV or digital. However, he did say that anecdotally he’s hearing more and more interest in CTV and that 2018 is shaping up to be a strong growth year.

Why Advertisers Are Dragging Their Feet On Connected TV

by Lauren Wiener

Mary Meeker, have we got a new gap for you. Audiences are moving away from traditional television in droves. They are breaking up with their cable companies and starting new relationships with connected TV. But advertiser spending lags behind user behavior.

Connected TV has its challenges – chiefly targeting and segmenting issues, a fragmented buying space and a lack of standardized measurement in audience validation. This isn’t news to players in the space.

To unlock advertiser demand, it is going to take advancements in measurement and more granular targeting. Improvements are in the works, but we have a way to go. Hopefully, as advertiser demand increases, so too will the technology solutions, and we will begin to close the gap.

Connected TV Spending

With media consumption behaviors shifting to digital devices, viewers have been moving away from traditional ways of consuming TV content through their cable providers. The definition of “watching TV” has changed. Many cord-nevers don’t even call it TV – it is video. Already, more households have access to Netflix than a DVR.

Connected TV represented 20% of weekly time spent viewing digital video in the US in August 2016, according to a Frank N. Magid Associates study. In the US, adults spent an average of five hours and 13 minutes watching video (both linear and digital) every day, according to eMarketer.

Right now, 66.5% of US households have connected TVs – that is 82 million households. By 2021, eMarketer forecasts that number will rise to 93.8 million households.

This trend is driven partly by the emergence of linear OTT services, including Sling TV, DirecTV Now, PlayStation Vue, YouTube TV and Hulu with Live TV. Although these emerging digital services are subscription-based, they are not technically “pay TV,” which eMarketer defines as subscriptions to traditional multichannel video programming distributors (MVPDs), as opposed to services that require an internet connection.

While there aren’t any US connected-TV ad spend statistics available, we know anecdotally that it is low. Weekly time spent with connected devices represented 11% of total viewing across linear TV and digital video, according to Nielsen’s Q1 2017 Comparable Metrics Report.

When compared to the time spent for linear TV only, connected TV’s share rose to 13.6%. However, OTT ad spend is estimated to be only about 2-3% of total TV dollars. For OTT/CTV ad spend to be proportionate to the time viewers spend with it, it should be significantly higher than currently levels.

Connected TV is mainstream, but we are observing the same phenomenon as we saw with mobile: Ad spend is lagging behind consumption.

Connected TV Challenges And Solutions

Connected TV holds great promise for marketers, but right now, many can’t see past its limitations, particularly the lack of standardized measurement in audience validation for evaluating campaign reach, impressions and performance, along with data inconsistency across devices and apps.

Marketers are also put off by targeting and segmentation challenges, since connected TV is a cookieless environment with no device ID. There are some solutions in place here, like Neustar, but they don’t offer the level of granularity that other connected devices provide. It’s all done at the household level.

Connected TV’s ad effectiveness measurement is behind compared to other digital platforms. You can’t track and optimize campaigns in real time, metrics are limited and measuring attribution is difficult. Viewability should, in theory, be close to 100%, similar to linear TV, but connected TV campaigns are limited in the fraud, brand safety and viewability measurement capabilities available.

Furthermore, buying connected TV is mostly a manual, I/O-based process, and there is limited premium inventory and scale. Although ownership levels of connected and smart TVs are relatively high, the actual consumption is meager compared to traditional platforms. That is growing rapidly, though, especially among millennials and younger generations.

For example, just two years ago, OTT represented only 8% of digital video ad views. Now, it represents 32%, according to the FreeWheel Video Monetization Report: Q1 2017.

Another factor affecting marketing budgets is that OTT is disconnected from the rest of the TV industry. Buying is fragmented, which is a major obstacle to OTT and linear TV becoming one programmatic buy.

While the challenges connected TV currently face mirror those mobile faced in its nascent stages, so will the solutions. Just as mobile players worked, and continue to work, to address these problems, so, too, will the connected-TV industry.

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60% of Dutch viewers will consider cord-cutting

60% of Dutch viewers will consider cutting the cord if the three main public NPO channels are available OTT, according to research from Telecompaper.

57% of people will consider such as move if the RTL channels are available OTT, and slightly less if SBS offers its channels over the top.

The research is good news for NLZiet, the Dutch on-demand platform with programmes from all three major broadcasting groups (NPO, RTL and SBS). Last November, the platform said it will introduce live OTT streams of the main channels.

Dutch viewers can also access live OTT streaming on the KPN Play platform and Knippr from T-Mobile.

Other research by Telecompaper shows that two-thirds (66%) of Dutch households now have TVs with internet access. This increases the likelihood of cord=cutting.

The figure rises to 73% for homes with children, while 62% of households without kids have a connected TV. The penetration of smart TVs has risen substantially in recent years, from just 30%, the annual surveys by Telecompaper’s Consumer Panel found. Growth slowed somewhat in the past year, to 5% from 12% in 2015.

Nevertheless, not all are using their smart TV to watch internet content. In Q4 2016, 36% of households said they watched internet content on the TV, up from 30% a year earlier. Around 14% connect a laptop to the TV to watch online content, up slightly from 12% in Q4 2015.

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Connected TV growth slows in the US

Growth in connected TV sales is slowing in the US, as penetration reaches into most households, according to research from The Diffusion Group (TDG).

The study shows that penetration of Internet-connected TVs among US broadband households has increased nearly 50% since 2013, from 50% to 74% at year-end 2016. And that means that sales are slowing.

Growth between 2015 and last year was only 4%, compared to 22% between 2013 and 2014, and another 15% between 2014 and 2015.

Besides saturation, broadband penetration has a hand in this. As TDG first noted in 2004, the diffusion of connected TVs would closely follow broadband uptake, and as broadband growth begins to slow, so too does the number of new connected-TV users.

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