Investment in paid digital advertising (Google, Facebook, etc.) has been higher than its traditional counterparts for years. Historically, however, viewers have spent more time with traditional media (broadcast TV being No. 1), and it is this metric that drives linear media plans.
But now, digital media is overtaking traditional media in time spent, and the money will continue to follow the viewing trend.
The shift to digital is a result of billennial maturation and the entrance of GenZers into the coveted 18-49 demo. Marketers serving the 50+community will still see better results with traditional media, but for all others — the time to establish a foothold in OTT media is now, while competition and rates are still relatively low.
Why does OTT
There will be over 24 billion connected devices globally by 2020, per Business Insider. This presents both a challenge and an opportunity for advertisers. The distraction of multiple devices has reduced the effectiveness of one-size-fits-all advertising.
Sophisticated advertisers with higher ad spend can use this distraction to their advantage by creating content specifically designed to connect across all screens, with unique content for each device (broadcast, live social feed, exclusive mobile content, promotional landing page, and AR-embedded print material).
The VAB says OTT delivers 42% exposure on its own, and one-third of all OTT households have three or more subscription accounts. The reason for the rising trend away from traditional bundles isn’t the number of channels.
On the contrary, demand for content is higher than ever before. But historically, linear multichannel subscriptions bundle too much irrelevant content, for too much money, and require too long of a commitment.
OTT removes these barriers and responds to the needs of an ever-growing population of consumers: freedom of choice, personalization and convenience.
The millennial generation has been widely identified as the most coveted demographic for marketers, but catering to this segment requires a shift in content provisioning.
While the majority of baby boomers and Gen Xers gravitate to broadcast television, 86% of millennials and GenZers watch their favorite programming via OTT, per eMarketer. In fact, OTT’s projected CAGR now through 2022 is more than three times higher than TV advertising.
Despite this trend, only 15% of advertisers consistently include OTT, reports Adweek. That represents a tremendous differentiation opportunity for companies marketing to the growing population of younger viewers.
The business of selling and consuming moving pictures evolves rapidly. Industry disruptors have overcome legacy resistance to change — as evidenced by “skinny” cable packages, on- demand, network streaming, and network/OTT partnerships.
However, the majority of annual media buys are still purchased up front, based on a finite amount of inventory. Until a 24-hour commercial calendar is no longer necessary, selling linear inventory will always be the first priority.
Fixed vs. variable
Broadcast advertising is a fixed cost and priced according to ratings. Streaming ad costs are variable based on the number of total viewers (bandwidth used), as well as the number of views per person. When infrastructure, business models, and paradigms are entrenched after decades of selling TV advertising one way, it’s difficult to change the modus operandi.
But traditional media has been losing ad dollars to Google, Facebook, and other paid digital for years — annual digital ad revenue is $37M higher than TV — and OTT advertising already has its first billion-dollar channel in Hulu.
Clearly, advertising is working for the 15% already leveraging OTT, but fixed rates are more easily managed given the (still) largely manual processes used today in ad management.
Formula for success
While OTT grows, it is most effective when combined with the proven results of linear television. Consider the following from the VAB:
• 70% of OTT households also have a multichannel subscription
• When linear TV and OTT are combined, brand favorability doubles to 99%
• Message reinforcement and incremental reach are increased
• More premium ads are delivered
OTT should not be viewed as a threat to the status quo, rather as a barometer for change. Cord-cutting is not an indicator of an unwillingness to watch ads or pay for programming; it is a protest against the status quo. It’s time for 85% of media buyers not yet leveraging OTT to start acting.