CAN YOU JUSTIFY YOUR OTT SPEND? WHAT TO KNOW ABOUT THE STATE OF STREAMING

written by Adam Ortman, Group Director of Innovation and Technology, and Shari Slackman, Director of Television Strategy and Investment, Generator Media + Analytics

This article will be published by CMO.com in Q1 2020

 

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 1.3 million cable subscribers cutting the cord in the first quarter of 2019 alone. And by 2021, it’s estimated that 50 million people will have abandoned their cable and satellite subscriptions.

 

In response to this shift, numerous broadcast companies have released their own digital offerings, from Disney+, NBCU, and Apple TV+ to CBS All Access, HBO Go, and countless others.

 

Does this mean companies should spend their advertising dollars on over-the-top, or OTT, streaming services and abandon linear TV altogether? The answer is not as simple as advertisers wish it were.

 

For one thing, several of the more prominent streaming services are skipping the opportunity for ad revenue entirely. Historically, Netflix always had the 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 current scale of OTT today is vastly limited. The steep increase in OTT offerings has caused viewing audiences to grow increasingly fragmented. In turn, this makes it harder for advertisers to reach audience members because of decreases in scale due to a vastly 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, however, 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 with a net, but it may not be what you’re looking for.

 

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.

 

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.

 

Of course, one of the benefits of OTT is the ability to hyper target your audiences. If you know you can reach your target audience near exclusively on OTT platforms, then your spend won’t necessarily be wasted. Meet your audience where they are — or rather, where they watch. For example, mobile users have historically dominated OTT viewership, although with the rise of smart TVs this is starting to shift.

 

In other cases, though, consider the measurement of scaling. 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.

 

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 begun to take this step, and networks like NBC could begin 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 back to cable-like viewing packages — albeit in a purely digital form.

 

Executives, buyers, and planners will have to be especially 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 capitals as a last ditch effort to attract more viewers. As time goes on, advertisers will be faced with new methods of buying and targeting, seemingly on a daily basis. In order 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 wishing to hit the cord-cutting crowd should be careful of overvaluing OTT.