OTT (Over-the-Top) advertising may still be in its early stages, but marketers are starting to understand how impactful this new digital advertising channel can become.

In this article, I’ll explain what OTT is, and how marketers can benefit from this exciting and evolving opportunity.

We will cover the following:

Let’s start with the basics.

The OTT takeover

OTT (Over-the-Top) has changed the way consumers consume video content and is the future of entertainment. Younger consumers are cutting the traditional television cord at an alarming rate, setting up OTT to upend the TV landscape in various ways, including an increasing share of advertising dollars. “Cord cutting” is the act of terminating traditional TV subscriptions and substituting it for web-based alternatives. 

Today’s consumers want more control over the content they consume. They want to access it whenever they want, wherever they are, and OTT gives them just that. But not all OTT consumers are cutting the cord. For many, it’s complimentary, as they’ve adopted OTT platforms alongside their traditional cable services.

A new report by eMarketer has confirmed that, for the first time, U.S. consumers are watching more video on their mobile phones than they are watching via traditional television. Seeing how millennials and generation Z have cut the cord in droves, or never had the desire for it, and ad dollars are increasingly flowing to the OTT platforms, even traditional broadcasters are getting in the game. Broadcasters such as NBC Universal, ESPN, and Viacom have already launched their streaming services. As more and more traditional broadcasters have launched or are planning to start their own OTT services, the industry is becoming crowded as new platforms continue to surface.

What is OTT?

OTT is content streamed through an Internet connection instead of a traditional cable or broadcast TV provider. Any provider that provides streaming content is considered an OTT service. Most know it as video-on-demand platforms. However, the term also applies to audio streaming, messaging services, and even digital voice-calling services. All that’s needed is an Internet connection, accessed locally or from a mobile network, and any OTT service can be obtained as long as you have a compatible hardware device. With a smartphone or tablet, computer, smart TV, or digital media player, OTT apps such as Netflix or Hulu can be downloaded as the portal to streaming content. 

OTT platforms are also accessible through computer web browsers. Digital media players, also known as OTT devices or set-top boxes, are considered devices such as Apple TV, Amazon Fire TV, Xbox, PlayStation, or Roku. The growing popularity of these devices, platforms, and the OTT industry as a whole, present excellent advertising opportunities for advertisers.

What is OTT advertising?

OTT advertising is, in essence, similar to commercials you see on TV. The difference is that the video gets streamed through the OTT platform or service. One of the most significant to advertisers is OTT’s evolving technology, which offers hyper-targeted programmatic options, as well as increased reach.

With more and more households subscribing to an OTT service, there’s no question that linear TV viewing and spending is on the decline. A recent eMarketer report stated that 55.5 percent of Americans are Connected TV users – a number that’s expected to rise to over 60 percent by 2022. While OTT still lags when compared to linear TV ad spending, it’s skyrocketing with a steep upward trajectory – a growth potential that is showing no signs of slowing down. This fact has forced marketers to include OTT in their media mix and rework their marketing budgets to accommodate this valuable media advertising tool.

For marketers targeting the 18-35 demographic, OTT is vital if they want to reach this young audience who have started to change the way they consume content. This is the sweet spot age range for OTT consumers. For any company or brand that depends on this demographic, not including OTT will result in high risk of not connecting with these consumers. It’s especially critical when given the fact that these users have opted-in for the content, including the ads, resulting in higher engagement. It offers advertisers a lay-up in getting their messages across to this demographic.

Having lower minimum spend requirements, Over-The-Top has also reduced the barrier of entry for advertisers that couldn’t previously afford to purchase ads on broadcast or cable TV. These advertisers can now market their products or services in a similar capacity without the astronomical minimum spends required for broadcast or cable television advertising. OTT’s hyper-targeting opportunities offer these advertisers the ability to better target their unique audiences with less waste than traditional TV advertising.

As the Over-The-Top landscape continues to grow, OTT video advertising is becoming a staple in media plans. It has caused the media mix for advertisers to be reclassified, with more money being shifted into the digital or innovation line item. What this means is lower budgets and spends for traditional TV advertising.

How is OTT different from other types of video advertising?

The main difference between OTT advertising and other forms of video advertising is its meticulous targeting ability. For example, with traditional TV, an advertiser can run an ad during a TV program that has a specific demographic of viewers. However, there’s a risk for ad budget waste considering viewers outside the demographics are also watching, and there’s no sure way for advertisers to know if the audience they are buying is viewing the programming.

There are more specific data with OTT advertising, having the ability to serve ads directly to their particular targeted audience, whether by gender, age, location, income bracket, etc. Targeting is so precise that viewers watching the same show may be served different ads based on their demographic makeup and advertisers targeting strategy. As technology evolves, the targeting possibilities continue to become more refined. While OTT advertising may appear different from traditional TV advertisers in terms of metrics and pricing, digital advertisers will find similarities.

What is the price for OTT advertising, and how does it differ from traditional advertising?

OTT pricing is more consistent with pricing for digital media than it is with pricing for traditional TV advertising. It is based on the CPM model, while the traditional and antiquated TV advertising pricing is focused on rating points. What this means is that traditional TV advertisers pay for ads based on estimated TV programming ratings. These estimates often miss the mark and make pricing a moving target. Advertisers that run ads in programming that falls short of the presumed rating number will often seek make-goods for the under-delivery. It’s a broken system that often frustrates advertisers and agencies.

How is OTT advertising performance measured?

OTT advertising offers advertisers more detailed metrics than traditional TV can provide. While this can be considered a good thing, the fact that the metrics for OTT are not consistent across the board is also a negative trait in the eyes of many advertisers.

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    One of the most standard measurements includes Video Completion Rate (VCR), which measures advertisements that are being watched to completion. Video Completion Rate (VCR) is something traditional TV can’t offer. Even traditional rating points are deceiving, even if the show or program purchased meets or exceeds the ratings. It is not guaranteed that viewers are watching the commercials just because a show rates high. It’s common knowledge that TV viewers use commercial breaks as a timeout, whether it’s a trip to the restroom, the need to grab a snack or beverage, or even a quick check of social media accounts, TV consumers use commercial breaks to do other things besides watching the actual commercials. A significant percentage of TV watchers don’t even watch in real-time because they DVR their favorite shows to watch later. When they do, they tend to fast-forward the commercials.

    Another useful metric is attribution, which tracks post-view action after a viewer has been served an ad. For example, advertisers can determine the number of consumers that have visited a website after seeing an ad. There’s also the standard click-through rate (CTR) for users who use specific devices to consume the content, such as mobile, tablet, or computer. The CTR allows consumers to click ads that take them to an advertiser’s digital properties.

    As technology evolves, so will the metrics. In what could be one of the most important metrics to date, Roku rolled out a new tool showing how OTT advertising offers incremental reach, meaning advertisers can reach an enormous number of new viewers who cannot be reached by traditional linear television advertising. Incremental reach is a home-run for advertisers, allowing brands to reach their desired consumers without annoying them with the same messaging on multiple platforms, time and time again. Expect more Over-The-Top platforms to roll out this technology in the near future.

    What are the issues with measuring OTT video ads?

    OTT advertising reporting has been a bit of a challenge for advertisers – not because of the lack of metrics, but because it’s not consistent across OTT platforms. TV advertisers are accustomed to Nielsen ratings. Nielsen ratings allow advertisers to compare networks and programming pretty much apples-to-apples against each other, across all TV channels, whether broadcast or cable. It also allows advertisers to easily and quickly evaluate a campaign across multiple linear TV channels.

    With Over-The-Top, while targeting is more refined, giving advertisers the precise ability to reach their targeted audience, the fact that viewers consume content across various devices and platforms makes it difficult to evaluate results. It’s difficult to gauge the apples-to-apples comparisons they’re accustomed to with traditional TV advertising. For this reason, many advertisers have been hesitant to dive into the OTT market.

    On the other hand, OTT’s comprehensive measuring capabilities is a big reason why more and more advertisers are gravitating to this medium. OTT advertising offers valuable data advertisers cannot obtain from traditional TV advertising, including the length of time viewers watch, or determining the types of ad content consumers are more engaged by. If and when the metrics become more streamlined, a larger share of advertisers will incorporate this medium into their advertising mix.

    What type of targeting capabilities are available with OTT advertising?

    As mentioned, precise and endless targeting opportunities are the two main benefits of OTT advertising.

    Traditional: includes segmentation ability by attributes such as age, gender, education, or ethnicity.

    Platform targeting: allows targeting of users of specific platforms. Whether Netflix, Hulu, Apple TV, or any other OTT platform, advertisers can target users by the specific platform they are advertising on.

    Behavioral: Targeting includes look-alike audiences which uncover the interests and behaviors of known consumers. Alternatively, there is psychographic, which targets users based on behavioral viewing data pulled from smart TV’s and mobile devices.

    Content targeting: In the realm of interest-based targeting, this targets users based on the type of content they consume with ads within a particular group of apps.

    Retargeting: The ability to target consumers by driving awareness on the OTT platforms, then retargeting them via mobile and/or web in efforts to drive acquisitions. Reinforcing your marketing message to the same audience on different platforms helps convert more leads into actual customers and increases brand recall.

    The bottom line with OTT

    One of the reservations advertisers had with OTT was scale; however, that’s no longer an issue. The scale is there and growing. While the OTT landscape may look very different over the next five to ten years, it’s here to stay. Advertisers and media buyers will have to take a hard look at including this medium as part of their media mix. It’s truly a medium that has evolved as the best that linear and digital have to offer.

    The fact is, more and more traditional TV buyers are buying inventory on Over-The-Top, shifting their dollars and adjusting their media plans accordingly. The landscape has changed to a digital-first environment, where millennials and Gen Z are at the forefront of changing the way they’re consuming content. If advertisers fail to know where they are and how to reach them, they will be left behind in the dust.

    If you’re interested in reaching your audience with Over-The-Top devices, contact us to discuss your campaign goals.