Popularity of streaming or OTT (Over The Top) services and CTV (Connected TV) devices is now mainstream. It may be hard to remember a time before streaming services existed in our lives, but there’s actually quite an interesting history that has already unfolded. As we all know, there is an abundance of choices available to us as viewers. Market leaders such as Netflix, Hulu, and Amazon Prime Video have been joined by dozens of other services, such as Apple TV+, Disney+, HBO Max, Peacock, and Quibi.
Let’s look back at how the OTT & CTV industry has grown and what it means for the advertising industry.
On Demand On Your Terms:
Netflix started in 1997 to disrupt the market leader of renting DVDs/video tapes, Blockbuster, which rented DVDs/video tapes via stores; Netflix did it by mail. In 1999 Netflix announced its new subscription model, $15.95 per month, which allowed Netflix members to rent up to four movies at a time, with no return-by dates. In 2000 Netflix abandoned late fees and return-by dates in favor of a monthly subscription plan priced at $19.95 per month. I attribute the main reason of Netflix success to their efforts of delivering better customer experience and starting a subscription service. In 2007, Netflix expanded its business with the introduction of a streaming service, while retaining its mail-order rental service. Blockbuster also started a streaming business that year, as well as running a DVD rentals business through its stores. Blockbuster tried several streaming services, but nothing took off. For instance, in 2011, it started Blockbuster Movie Pass with Dish Network, providing access to a streaming service, movies and games-by-mail for $10 per month. But the package was only available for subscribers of Dish Network. The rest is history. Netflix became the de facto leader of the OTT industry while Blockbuster diminished.
Hello (Connected) TV:
The growth of the CTV industry is also impressive. In the early days of streaming, most audiences connected their PCs to their TVs. Viewer preference and desire to watch premium content on a big screen led to the genesis of the CTV industry. Netflix fueled the adoption of CTV devices by creating and distributing the Netflix app to all available CTV devices. In fact, after Netflix decided not to build its own video player, businessman and previous employer Anthony Wood left the company and started Roku, launching its first device in 2008. Netflix was smart to build up scale of CTV devices that could stream their services, while paying device makers very lucrative incentives for preferential placement in their UI and a button on remote controls to increase ease of use and adoption.
Big Screen Gets Big Attention:
Apple launched Apple TV in 2007. It was designed to feed a big-screen TV with the movies, TV shows, music, podcasts, and photos that were on your Mac or PC. Samsung launched the first Internet connected TV in 2008 and rebranded it to Smart TV in 2010. The promise of Samsung Smart TVs was to offer all streaming apps in one place and using a single remote control. Amazon took a different path to becoming a leader in both OTT & CTV industry by launching different video services, starting with Amazon Unbox in 2006. Amazon Unbox evolved to Amazon Video On Demand, then to Amazon Instant Video, to Amazon Video, and finally to Amazon Prime Video in 2018. It took Amazon only 12 years to transform their brand and finalize their offerings. However, Amazon has accumulated significant scale of Fire TV devices in the last six years.
Enter, the Platform:
The initial business model for CTV device manufacturers like Samsung and Roku was to sell devices. For Apple and Amazon, it was to keep their services (iTunes & Prime) relevant and reputable. The business models have evolved, and Samsung, Roku, and Amazon have built advertising platforms to complement their business as their margins on devices are very thin. CTV ad platforms have been filling the gap between linear and digital advertising in the era of TV audience erosion and finding a similar audience in digital. CTV ad platforms offer similar functions and capabilities as digital advertising and deliver lean back experience with premium content. The platforms offer audience targeting, better reporting, measurement, server-side ad insertion (SSAI), ability to use VAST tags, and interactive ads, just to highlight a few features that are table stake in digital advertising.
Connecting the Dots (and Spots):
Advertising on OTT services and CTV device have been growing, but it still has some challenges. OTT/CTV advertising is fragmented and needs operational standards for smooth implementation. Additionally, OTT/CTV advertising lacks standard ID for audience targeting and measurement. Each platform has different IDs, and where & how buyers can use the IDs are different from platform to platform. Most OTT/CTV ad platforms still fail to report content & apps that an ad ran on. The other challenge is that different parts of an agency buys OTT/CTV ads. This is one of the impediments to faster OTT/CTV adoption. A digital team would assert that targeting disciplines and a focus on buying audience is a more relevant skill set for digital buyers than TV buyers who have historically focused on buying GRPs. On the other hand, TV buyers believe it is their purview to supplement TV reach and reach the viewers that are not watching linear television leveraging OTT/CTV.
The origin of OTT services and CTV devices was rooted in the desire of viewers wanting to watch their favorite content whenever & however they want. There is research showing that people prefer and engage with relevant ads delivered to them without disrupting their viewing experience. I am hopeful and excited that OTT/CTV advertising can deliver that experience consumers are looking for, and it will be advantageous for brands that leverage all of the capabilities of OTT/CTV advertising.