(Credit: Netflix)

A Change in the Living Room Signals the Rise of OTT

What was once home to the family radio, and subsequently the household television, now plays host to the connected screen, streaming premier programming via the internet

A major change is happening inside the American living room. What was once home to the family radio, and subsequently the household television, now plays host to the connected screen, streaming premier programming via the internet by way of Roku or AppleTV or any other number of over-the-top devices now available to the public. This shift signals the meteoric rise of a new way of watching media in America, as well as a significant change in how we monetize its consumption.

OTT is experiencing explosive growth. At least 65%-75% of U.S. homes now have at least one TV connected to the internet, with many homes having multiple TVs connected. More attached devices means more connected viewing. According to eMarketer, the average weekly time US internet users will watch OTT TV is predicted to rise 425% between 2014 and 2020, from 3.6 hours to 18.9 hours. The millennial generation is leading the charge in the cord-cutting phenomenon, and more and more households will soon forgo traditional television watching. Last year alone, nearly 40% of U.S. millennial households relied solely on internet streaming and broadcast. With the cost and depth of screens approaching zero, and the barrier of entry lower than ever (an Amazon Firestick, Roku or Amazon TV is less than $40) digital’s presence in the living room is only expanding.

This presents a major opportunity for digital advertising. An increase in consumer hours spent on OTT devices means increased ad revenue. OTT ad revenues are already projected to hit $31.5 billion in 2018, up 275% from $8.4 billion this year.  For marketers, OTT’s promise on ROI is appealing: According to FreeWheel’s Video Monetization Report for Q1 2017, 32% of ad views occurred on OTT devices, up 16x from a 2% share just 4 years ago. FreeWheel also found OTT devices have the highest ad completion rate (98%) and the highest percentage of 60+ minute viewership (36%) of any viewing device. With so much to gain from OTT, the question that’s top of mind for the digital industry is this: How can we fully take advantage of the nascent OTT ad market?

In order to fully capitalize on OTT’s potential, we have to take a hard look at some of the challenges it currently faces. As it stands now, the delivering of ads via OTT is overly complicated, and there are too many steps and processes one has to go through along the media supply chain to get an ad to play to the right person at the right time. Marketers need to be able to access premium audiences, across connected devices, in one simple programmatic buy. To streamline the process, the supply chain will need to become increasingly integrated. If we can streamline our infrastructure, and collaborate across silos, we can make the buying and selling of OTT inventory more efficient and effective.

We also need to put a focus on quality. While programmatic ad supported OTT is poised for major growth, the technology still isn’t perfect. For the market to really meet its full potential as well as user experience expectations, the technology needs to be stable and scalable. Right now, there are some flaws in the programmatic supply chain and the technology that make it a gamble for marketers. Ads might play correctly most of the time, but not all the time. To compensate, media owners sometimes opt to run the same dependable ad multiple times in a break (hence that annoying video ad you see four times in a row during a single program). This is a lost opportunity for precision targeting, via programmatic. Yet, in order to deliver the right creative to the right person at the right time, and have it run effectively, there will need to be increased emphasis on working out kinks in quality. We’ll want to ensure all ad and video delivery systems are aligned in order to deliver on the promise of ad value. Lastly, we’ll also need competitive separation if we want TV budgets to truly make the move to OTT.  

A third issue with OTT is metrics: We currently lack a standard for evaluating campaign reach/performance. Yet, impression metrics for mobile, or personal devices that are a 1:1 ratio between the creative and the viewer, won’t be the same for OTT devices in the living room. With OTT, it’s hard to measure how many people are watching: It could be 1; it could be 5. This lack of metrics applies to measuring viewability as well. Logically, OTT ads seen on a TV are 100% viewable. Yet, due to a lack of standard metrics gauging viewability, it’s a challenge to show ad performance. As an industry, we need to create more universal metrics and standards, so that publishers can ensure dollars translate to value. This will mean leveraging data to optimally package/price OTT inventory.

OTT is undeniably ascendant, and shaping the living rooms of the future. While it’s clear OTT will continue to grow in popularity and importance, it’s critical the entire industry collaborates to streamline the models that support OTT advertising and emphasize quality so that we can deliver on its promise while fulfilling the high expectations of viewers. In days to come, they may expect it to completely replace traditional TV.