CTV 6 min read

Disrupt or Be Disrupted: Connected TV’s Inevitable Takeover of TV Ad Revenue

The future of TV advertising is connected TV.   A bold statement? Not really,

Written by

Perion

Published on

26th Jul 2023

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The future of TV advertising is connected TV.

 

A bold statement? Not really, when you consider that by 2026 it’s estimated that there will be 80.7 million cord-cutting households in the US compared to just 54.3 million pay-TV households.

 

In reality, things are going to move a lot faster than that.

 

The media landscape has changed beyond recognition over the past few years, and it’s showing no signs of slowing down. Evolving consumption habits and cord-cutting trends are disrupting traditional TV models, making it harder to engage viewers and capture their attention. These shifts are forcing advertisers to reconsider their reliance on linear TV, leading many to explore new ways to connect with today’s tech-savvy and on-demand viewers.

 

One solution that has come to the forefront is Connected TV (CTV). In a few short years, it has moved from a ‘nice to have’ to a strategic imperative for any media plan.

 

Connected TV, also known as smart TV, refers to a television set that integrates internet capabilities, enabling users to access a wide range of online content and streaming services.

 

What is Connected TV?

Often confused with OTT (Over-the-top), CTV refers specifically to the device (a television connected to the internet), whilst OTT refers to how the content is delivered e.g. over the internet bypassing traditional broadcast methods. For instance, watching Netflix on a TV screen qualifies as CTV, whereas viewing the same show on a mobile device does not fall under the category of CTV.

 

Consumer behavior is shifting and the decline of linear TV is accelerating

By the end of 2023, less than half of US households will have a traditional pay TV subscription.

 

This ‘cord cutting’ phenomenon has undoubtedly gained momentum in recent years as the rising cost of cable packages, coupled with the convenience and flexibility offered by streaming platforms, has prompted many people to look for alternative ways to consume content. This is particularly the case with younger generations, where it is estimated that 65% of Gen Z does not have a cable subscription. This is in sharp contrast to what we see on CTV, where viewership is growing across all ages.

 

Gone are the days when viewers were bound by the constraints of scheduled programming and limited choice. They are now in control and have the ability to choose what they watch, whenever they want.

 

For the most part, cord cutting is triggered by two things. The first is purchasing a new TV and discovering its enhanced features. The second is relocating to a new home, which presents a choice between sticking with the typically costlier cable TV option or transitioning to a digital service. What most people don’t realize is that both behaviors are on the rise. In 2022 27.3 million Americans (8.6% of the population) moved home, which is roughly 4% more than in 2021 (source: US Census Bureau’s Current Population Survey). Similarly, the global smart TV market is expected to expand at a CAGR of 11.4% from 2023 to 2030. These trends provide significant tailwinds to the continued adoption of CTV and is why we think many commentators have vastly underestimated CTV’s rate of adoption.

 

As audience behaviors continue to change, brands face the challenge of finding effective ways to keep up. Forward-thinking marketers have embraced the changes and are ditching independent TV and digital strategies in favor of a holistic approach that embraces Connected TV (CTV).

 

CTV Ad spend is following the demand and is set to outstrip growth estimations

Globally, there is a growing demand for CTV advertising, with advertising dollars following audiences as they migrate to CTV and streaming platforms.

 

Spending is estimated to reach nearly $26 billion in 2023 (+3.2% YOY) and by 2028 it’s expected to surpass $42 billion. Evidently there’s an increased willingness by advertisers to accept the format, but with the pace of innovation in the space it’s extremely likely that the actual figures will outstrip these estimates.

 

In 2023, we’re just scratching the surface of what CTV (Connected TV) offers. Ad-supported content is on the rise, especially with giants like Netflix and Disney+ entering the scene. As these giants lean more into their Direct-to-Consumer platforms, traditional linear channels will likely miss out on top shows and movies. This will inevitably lead to further audience migration, and ad budgets will follow suit.

 

CTV is also making inroads into live sports, and it’s becoming clear that linear TV is losing its grip on what many consider its last stronghold. More leagues and events are accessible on streaming platforms than ever before. In 2022, the Super Bowl, Premier League, and UEFA Champions League were all available on ad-supported streaming platforms. As these platforms enhance their sports offerings and intensify their marketing, we can expect dollars to swiftly follow suit.

 

The benefits of CTV advertising and why linear TV can’t compete

When advertisers take the plunge with CTV, they rarely look back.

 

The enhanced capabilities of CTV provide significant advantages over linear TV and brands that take advantage of the opportunity are reaping the rewards. Some of the main benefits include:

 

Precision targeting: CTV enables TV advertisers to take advantage of digital targeting and go beyond what’s possible with linear TV. Common targeting options include: age, location, gender, known interests, education, income level and purchase history. Brands can also develop targeting strategies based on their own first-party data.

 

Enhanced measurement capabilities: CTV provides definitive outcomes that can be immediately accessed, eliminating the need to wait for weeks or months to make adjustments based on performance. Some of the key metrics to help you track your CTV advertising performance include impressions, ROAS, CPA, Reach, Brand Lift, GRPs, website visits, footfall traffic, and in-store sales. The ability to track a campaign’s impact across both digital and offline platforms offers a distinct advantage

 

Low barriers to entry: CTV is more accessible for small businesses since they can set their campaign parameters themselves. For example, rather than being restricted by expensive legacy TV network deals and broad brush demographic targeting, they can choose a pricing structure that suits their needs (CPM / CPV).

 

Performance CTV advertising: TV advertising has long been the domain of upper funnel brand storytelling. However, with CTV’s enhanced ability to optimize toward site-level interactions, advertisers can now use TV advertising to drive lower-funnel objectives. Numerous streaming platforms are also either vertically integrated or possess collaborations with marketplaces, enabling brands to establish a comprehensive connection with consumers that feels seamless and contextually appropriate.

 

Looking forward

Incorporating CTV into your media plan is no longer a choice; ignore it, and you ignore a large chunk of your potential customer base. It’s clear that we will see increased monetization of inventory and ad space as the space continues to grow, and this provides a significant opportunity to connect with audiences. By adapting to the changing landscape, advertisers can position themselves at the forefront of the industry and drive meaningful results. Companies that embrace this shift, backed by the right technology and teams, will emerge as winners in the evolving TV advertising landscape. The choice is yours, disrupt or be disrupted.

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