COMMENTARY

Has OTT Advertising's Time Arrived?

• by Dave Morgan , Featured Contributor, Yesterday

Yes, it’s time. Vincent Letang of Magna just released a new report projecting over-the-top (OTT) video advertising to hit $2 billion in the U.S this year.

While it’s a long way from the $63 billion he projects for U.S. linear TV, it’s a big number and is up 40% year over year. (Important to note: Magna’s total spend numbers are lower than some analysts publish, since Magna only reports actual media owner revenues, not total advertising monies paid by advertisers, which might include associated costs like agency fees, commissions and rebates.)

Why so much growth this year in OTT advertising? Simple. It’s all about achieving scale. Ad spend on OTT advertising is growing so much because OTT ad inventory is growing so much.

For the past couple of years, the biggest knock on OTT advertising has been a lack of scale, driven by the fact that the vast majority of OTT viewing is on ad-free programming — Netflix, Amazon Prime — or programming with ad loads well below linear TV, like Hulu’s.

Clearly, we now have enough scale in OTT ad viewing that the sector can absorb meaningful amounts of ads with the explosion of services like Sling, DirecTV Now, Vudu’s Movies on Us, Crackle and the host of programmer-owned services like CBS All Access and Turner’s Boomerang.

Not all media find that their monetization truly tracks usage — just look at Mary Meeker’s annual slides shows. However, OTT is different. It can absorb ad spend easier and faster than other media channels because it can be substituted for, and compared directly with, inventory on our largest media channel, linear TV.

Five or six years ago, most OTT viewing in the U.S. occurred on small screens: desktops, laptops or tablets. Today, the vast majority is streamed onto the big screen, the TV, just like the rest of “TV.” Plus, so much of OTT programming today is not only similar to the programming on linear TV, it is exactly the same programming.

Finally, a big byproduct of the scale that ad-supported OTT is achieving is a stabilization of its pricing — read, softening. When it was more scarce, and viewed by many as a “sexy” buy that their clients had to have to look smart, pricing didn’t matter as much. Now that it is being viewed more comparably to linear TV, its pricing will have to become more comparable. Fortunately for media owners, inventory growth is so strong most of them won’t notice the slight softening in pricing.

What’s next? Critical for OTT advertising to keep growing in line with its usage will be a maturing of the data, analytics and measurements that it can provide.

Roku has been an early leader here, but the fact that NBCU had to create its own C-Flight measurements cobbled together with numbers from Nielsen, comScore and log files says it all.

OTT vendors today can’t deliver very accurate cross-service reach and frequency numbers by viewer, let alone granular data about those viewers — and certainly, nothing like advertisers receive regularly relative to their linear TV ad buys.

Fortunately, lots of folks are now focusing on this lack. Nothing like a $2 billion market growing at 40% year-over-year to attract investment.

What do you think? Has OTT advertising’s time arrived?