The Growth of Connected TV

What is Connected TV (CTV)?

A Connected TV (CTV) is an internet-connected device used to watch TV/video content online, such as computers, mobile devices, smart TVs, and gaming consoles. 

Over-the-top (OTT) is a term often used synonymously with CTV. It refers to the services that deliver TV/video content through the internet, in streaming or video-on-demand (VOD) format. 

OTT content usually requires subscription-based payments for access. However, some providers do not charge any fees to customers. Instead, they generate revenue by showing their viewers ads. Major OTT service providers include Roku, Amazon Fire TV, and Apple TV. 

Users can watch content using their CTV device, bypassing (or "over the top of") cable and satellite television platforms, which traditionally act as controllers or distributors of said content.

Why are people switching to OTT?

The rise of CTV and OTT has led to a phenomenon known as "cord-cutting" — where the customers cancel their traditional cable and satellite subscriptions in favour of these new formats.

The main benefits of CTV and OTT are the following:

• Accessibility — Viewers can enjoy content from various devices, almost anywhere

• Control — Users have the freedom to choose what they want to watch and when, with the ability to pause or rewatch.

• High value at a low price — Users gain access to massive content libraries for modest prices. 

• Access to Original and Exclusive Content — Most large OTT platforms have original and exclusive content on their platforms not found anywhere else.

Connected TV Advertising

CTV is the fastest growing media segment, accelerated by global stay-at-home orders. The total hours spent on CTV devices was up about 80% in 2020 versus the year prior, and there are now over 180 million CTV viewers in the US alone. 

It is no surprise that many companies are entering the OTT space, leading to a wide variety of options for consumers and increasing quantities of ad inventory for marketers. The rise of CTV viewership provides more meaningful ways for advertisers to engage with their target audience. 

Advertisers are expected to dedicate a greater percentage of their advertising budget towards CTV devices. Total CTV ad spend is projected to increase from about $9 billion in 2020 to over $29 billion in 2024.

Purchasing Connected TV Ads

Nearly all Connected TV ads involve programmatic advertising — the automated buying and selling of digital advertising inventory using various electronic media. Programmatic advertising allows for Real-Time Bidding (RTB), a process that allows ad space to be purchased instantly if it falls within advertiser-defined parameters.

When a viewer is loading into content, the content page sends a request to the supply side platform (SSP) / ad exchange with information about the content and the user. The SSP processes and transfers the request to all registered demand side platforms (DSPs), who represent buyers, for bids on the available ad space. 

Buyers define parameters for what kind of impressions are valuable to them. Then, the DSP uses proprietary data and algorithms to determine which advertiser would best fill the ad space. It evaluates how much ad space is worth to each of their advertisers and then assigns them a bid. 

The highest bidder wins the auction, and their advertisement is filled on the page before it finishes loading for the viewer to see. The entire process happens in seconds.

CTV Stocks to Pay Attention To

The Trade Desk is one of the most well-known DSPs, and its customers are purchasers of programmatic advertising inventory and data. Clients typically initiate usage of the platform by signing a Master Service Agreement (MSA) for a term of one year and are charged a fee based on a proportion of their total spending on advertising.

The Trade Desk's clientele retention rate of 95% on a year-after-year basis reflects the tremendous value that its services provide.

The company obtains its advertising inventory from over 80 ad exchanges and supply-side platforms. Also, it is partnered with over 200 third-party data vendors whose products can be purchased on its platform.

The scale, growth in adoption, and nature of the platform create a network effect for clients of The Trade Desk, where a large number of sellers of ad space attract and provide more options for buyers, which, in turn, attracts more sellers.

The Trade Desk’s large and fast-growing customer base has provided it opportunities to partner with major CTV inventory providers such as FOX, Discovery Channel, and the MLB. In addition, as The Trade Desk collects more data over time, its algorithms will become more powerful and offer better ad space matches to its users. 

To learn more about programmatic advertising, CTV, and the world’s largest independent DSP, see our The Trade Desk (TTD) report here.

Types of Connected TV Ads

There are three main types of Connected TV ads:

• In-stream video ads — Unskippable 15-30 second long ads that play before or during the program.

• Interactive Pre-Roll ads — Ads allow viewers to click through to a landing page. 

• Home Screen Placement ads — Short video or image ads that sit on the home screen.

Connected TV Advertising Benefits

Connected TV advertising has advantages compared to traditional forms in the following ways:

• Efficiency — Traditional forms use negotiations, and ads are traded manually between ad buyers and publishers; Programmatic advertising uses automated electronic methods that allow ad space to be purchased instantly.

• Greater Targeting Capabilities — In traditional advertising, the ad server would place ads based on the advertiser contract; Programmatic advertising provides the advertiser with customizable targeting options, such as geolocation, device, and browsing activity, among others.

• Real-time metrics  - Traditional advertising data is collected from various sources and the campaign effectiveness is largely unknown until the end; In programmatic advertising, advertisers can measure campaign effectiveness in real time by tracking the cost-per-completed-view, video completion rate, clicks, conversions, and direct responses.

• Data - Advertisers could better target the audience using first- and third- party data, such as user-registration data and their shopping and browsing activity across devices.

• Frequency - Advertisers can control how often ads are shown, providing the audience with the best viewing experience.

• Pricing – Traditional advertising has predetermined, contractual pricing negotiated between the buyer and seller; Programmatic advertising uses RTB to offer more competitive prices on ad space that align with the advertiser’s goals.

Bottom Line

Pay TV viewers have been steadily declining over the past several years. Fewer eyeballs are on traditional TV advertising than ever before, and advertisers are hungry for data-driven marketing to once again reach their target audience. The trend is clear: as viewers continue to migrate towards OTT media consumption, the only way to reach them will increasingly be via CTV.