Will streaming change TV advertising for the better?

Streaming TV shows and movies has never been more popular among viewers, and the trend seems to be growing at a rapid pace. Netflix, Amazon, Hulu, YouTube, Zattoo – the list goes on and on.

With OTT (over-the-top) streaming companies continuously expanding and scrambling to win the most active users, how can performance-driven TV advertisers partake in this new TV landscape?

Let’s start at the beginning: How big is the cord-cutting phenomenon really?

Let’s look at the stats on cord-cutting

According to S&P, the UK is leading the cord-cutting trend, with 13% of internet households opting to cancel their pay TV service. The UK is closely followed by the USA (11%), Germany (8%) and France (7%) who are choosing to stream video content instead.

However, these cord-cutting figures seem tame compared to the growing number of cord-nevers. Here, Germany is leading the pack, with 27% of internet households never subscribing and never planning to subscribe to a pay TV service. France (20%) and the UK (19%) also show a growing trend of OTT video services replacing classical TV as a staple in the modern household.

Surprisingly, cord-cutting is not just a growing trend among younger generations. In Germany and France, 21% of cord-cutters are above the age of 55. This is mainly driven by the lower cost of streaming services compared to pay TV providers. The UK and US show similar trends, with 24% of cord-cutters in the UK being between the age of 45 and 54, and 32% in the US aged 35-44. It appears that streaming video content is a cross-generational phenomenon, with the high cost of pay TV as the driver.

But how are cordless viewers consuming their video content? With all new television sets now internet connected, viewers have more options than ever before. In Germany, 90% of cord-cutters stream their TV content on a connected/smart (Hbb)TV, whereas 40% also stream from their digital device.

A country by country breakdown. Courtesy of S&P Global

Some good news for linear TV advertisers

So how can performance-driven TV advertisers also share in the OTT streaming pie?

The good news is, our favourite TV channels are not planning to get left behind in the dust. With services like Smartclip and SkyGo on the rise in Europe, performance-driven TV advertisers are jumping at the opportunity to get more bang for their buck.

In Germany, Smartclip owns the biggest inventory of addressable TV, with RTL and IP relying on their HbbTV technology. Their data-driven technology opens up a world of new targeting possibilities, with over 13 million HbbTV households being reached via an ad server.

SevenOne, on the other hand, has been promoting their addressable Switch-In ads, which appear as a frame over the TV content when the user switches the channel. Both Smartclip and SevenOne’s addressable TV technology has the option to include a red button, making the ad clickable on a smart TV. Most advertisers use the red button as a branding mechanism, which leads to a longer commercial or a microsite when clicked.

Video on demand (or VOD) streaming platforms like SkyGo and Zattoo, which offer advertising space (unlike Netflix or Amazon), are also gaining popularity across Europe. These online streaming services offer advertisers the opportunity to place non-skippable ads as pre-rolls or mid-rolls on their video content. The ads are naturally clickable and performance can be measured with the usual online video click-through and conversion rate KPIs.

Courtesy of S&P Global

However, this brave new world of OTT is not all sunshine and roses. There are three main obstacles that need to be addressed by OTT service providers before advertisers can truly start making the shift to cordless TV:

1. High CPMs

With the average cost per thousand contacts (CPM) of HbbTV and VOD being exponentially higher than the CPM of traditional TV, advertisers are skeptical. However, one might consider the potentially higher response rate of a commercial playing during the content itself, as opposed to being one of many ads in an ad break and competing for a share of voice. OTT providers are also relying on their advanced targeting possibilities to justify the high CPM. Most hbbTV and OTT providers can offer geotargeting as a premium on top of the usual demographic segmentation, with the potential for more targeting capabilities on the horizon. However, the increasingly stricter privacy regulations being enforced in Europe might become an obstacle for more granular targeting possibilities in the future. In the meantime, advertisers can only hope that as the HbbTV and VOD usage increases, the CPM will naturally decrease. However, as always, broadcasters have the prerogative to place a premium on their pricing if they see a high demand from big brands for their ad space.

2. Performance tracking issues

Despite promises of tracking possibilities on par with digital marketing, so far we have not seen any tracking system that can measure the performance of non-clickable hbbTV and VOD. We are able to track the uplift in website visits or app installs on classical TV, as all viewers of the live program see the ad at the same time (an example is our TV attribution technology DC Analytics). OTT streaming services will serve the ad to an individual viewer at the specific time of them watching a program, making it difficult to track how many viewers visited the website or downloaded the app after seeing the ad. The only solution offered by OTT providers thus far is to only use clickable ads on VOD and measure performance with click-through-rate data. However, this will not account for viewers converting after a few minutes of seeing the ad like we can on classical TV, which limits the OTT performance analysis. The hbbTV clickable ads, on the other hand, are mainly used for branding purposes and not direct response. The issue here currently lies with the TV hardware, which limits a user’s ability to interact with ads like they do on a digital device. As it is too complicated for viewers to use the existing remote controls to click on ads for the purpose of navigating a website to make a purchase, we cannot measure the direct response performance.

3. Lack of scalability 

Last but not least, cordless streaming services still lack the mass audience and reach that advertisers get with free and pay TV. Despite the steady migration to OTT, the most reliable marketing channel for advertisers looking to expand their reach and share of voice remains good old-fashioned linear TV. This is especially true for advertisers with a broad target audience and who are not limited by physical stores that are only present in certain regions or cities. Perhaps as OTT outgrows classical TV in the future, advertisers will see the potential to scale on streaming platforms, but until then OTT will remain second fiddle to its bigger, older brother.

As OTT advertising is still in its infancy, and with high competition accelerating innovation in the field, advertisers are currently testing the waters to find out the performance and ROI generated on these platforms. We at DCMN are eagerly testing the possibilities this growing marketing channel has to offer our performance-driven clients. Feel free to reach out to us for any questions regarding OTT, performance TV advertising and the many other marketing channels we use to grow our clients’ business.

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