Commentary
Why Are CTV Ad Rates So High?
- by Dave Morgan , Featured Contributor, April 22, 2021
In a discussion today about the reshaping of the TV and video landscape, I was asked a question that I’m hearing more and more often: “Why are CTV ad rates so high?”
Because the question was posed by a super-smart industry leader, it presumed a well-known but not-much-discussed fact: that CTV ad rates are in fact high, both compared to other digital ads and to linear TV as well. The question was immediately followed up with, “Is it just a matter of supply and demand?”
As you’ve probably guessed, the follow-up question was the answer. CTV ad rates for premium publishers are typically priced from two to six times national linear TV ad rates, and the biggest reason is scarcity.
How is that possible, you ask? Isn’t everyone today watching streamed content? Shouldn’t there be tons of inventory?
Yes, lots of Americans today watch streamed content. Nielsen data tells us that 24% of TV viewing times is now on streamed programming. However, because the vast majority of that is on ad-free services -- Netflix, Amazon Prime, Disney+, HBOMax, etc. -- or ad-light services Hulu and YouTube, that viewing is creating very little ad inventory.
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In fact, Nielsen data and data from smart TVs tell us only 4% of the ad viewing time on TV today is on streamed content. So, while streaming may have one-fourth of programming viewing time on TV, it only contributes a twenty fifth of ad viewing time.
With much of the ad spend previously earmarked for the lost linear viewing time now looking for a new, premium video home, we have a classic situation of lots of money chasing a relatively small amount of CTV ad inventory.
Will this change soon? Probably not. While we’re seeing the launch of more ad-supported streaming (Peacock, Discovery+), it’s a question of human behavior change. And the ad-free services still have very attractive price points. Plus, Pew Research reminds us that 35% of American households still do not have fixed broadband at home. That’s 100 million people who can’t watch streamed video ads.
What can we do in the meantime? First, this is the time to be experimenting with CTV ads. They will be the future. Second, optimizing linear TV ad spend has never been more important. This is the time to stop “empty calorie” GRPs on TV and focus on more impactful -- and, more expensive -- optimized TV ad delivery. It is still well below the price of CTV and has a lot more scale.
Third, watch out for fraud. As we learned in the early days of mobile advertising, an imbalance of supply and demand is quickly filled with fraud and bots. We also learned this week -- once again -- that it's not unusual for 40% of programmatic CTV buys to be fraudulent, which is why those rates are relatively cheap. Thus, buying directly from publishers like NBCU/Peacock, Hulu, A&E or companies with direct, transparent relationships with publishers like Roku, is the best way to stay fraud-free.
Finally, this is also the time to be looking where premium video ad inventory may be opening up down the road, particularly in places like video gaming. As Netflix CEO Reed Hastings said earlier this week in his company’s earnings call, "We earn consumer screen time, both mobile and television, away from a very broad set of competitors. We compete with (and lose to) 'Fortnite' more than HBO."
CTV ad rates may never normalize with linear TV, certainly not until gamer-friendly video advertising becomes an acceptable and valuable component of video games like "Fortnite."
I agree with you Dave reagrding scarcity of viewing time on AVOD/CTV. However, it's also clear that the major TV programmers will offer greatly reduced ad clutter as an inducement to subscribers at the outset---which also lowers the avaialility of GRPs for sale while offering great benefits to the advertisers in terms of eyes-on-screen ad exposure relative to "linear TV" commercial breaks. Unfortunately, AVOD/CTV ad sellers have, so far, not produced the kind of convincing research to support their higher CPM demands nor have they sold in their form of TV to the real decision makers---the client CMOs and brand managers---not the time buyers. A huge mistake.
A second reason for higher CPMs, at least for now, is the demographic slant of the AVOD/CTV audience. It's probably 10 or more years younger than its "linear TV"counterpart and leans more towards the upscale/better educated segments---though this will slowly change as AVOD/CTV becomes more and more like "linear TV" in its content and old folks catch up with the early adopting younger, better educated types and become heavy streamers..
While demo and environment are factors, they ar not enough to account for CPMs that are 6x prime linear tv. With fraud included, 6x cpms are likely at the low end. Including fraud, it's like much much higher. Those who spend lots in this space should see other sources of video ad impressions a bargain. On the measurement side, sellers remain resistant to combining linear with digital video impressions because they don't want to hurt digital cpms.
Ed, very good point about reduced ad clutter. But, today it's all about theory rather than practice. No one has yet shown either more sales or more favorability from getting fewer ads.
Totally with you Jack. Digital buyers are focused on artificial cpm's that make no sense in cross platform world.
Great article Dave and you pose great questions.
I agree with Ed and Jack entirely.
Dave, in the article you reference "it’s a question of human behavior change". But there is another aspect of human behaviour that may equally explain the high CTV rates, when linked with supply and demand.
Marketers are humans too. And in marketing the 'appeal of the new' and being on the leading edge (and at times on the bleeding edge) is a highly regarded attribute of being at the forefront of marketing (irrespective of the cost of course).
Very good point John. For sure, the supply and demand issue is more than math, but also in teh value of dominating share of voice to those only available in low ad environments.
The scarcity exists due to the fact that in proportion to other "streaming" options such as Youtube that the younger audience isn't actually on those platforms. Additional to this is the high form of duplication that exists on these platforms as well.
Crazy to think that linear TV businesses still have the weight at the negotiating table when it comes to their upfronts which then filter down to CTV - hence driving the scarcity cosf argument