What is Connected TV and How Does CTV Work?

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    Connected TV, or streaming TV, has been growing rapidly for the last 15 years now but is still being unfairly overlooked by marketing specialists that give all their attention to conventional advertising mediums like linear TV or social media. According to Statista, there are over 204 million in the United States alone that own at least one CTV/OTT-enabled device, which is over 80% of total US households. While only slightly over 70% of US households are subscribed to pay TV, as stated in the Leichtman Research Group report. And that is not the only argument in favor of CTV advertising. If we compare it with linear TV advertising, we’ll learn that it is much more versatile and precise in the way it interacts with users to accumulate more revenue if used right. But before we get to that point, let’s familiarize ourselves with the main concepts this technology brings and see how it all works in a nutshell.  

    The definition of CTV 

    CTV stands for Connected Television. Basically, it is a separate device or a technological platform that supports video streaming from a server to a user. So the ‘connected’ part implies internet connection, while the ‘TV’ part means it should be capable of video  playback. What kind of CTV devices are there? Naturally, this category includes smart TVs, gaming consoles, and all sorts of standalone devices that have internet-enabled operating systems connected to external displays like Apple TV, Roku, Amazon Fire Stick, Android TV, etc. It all makes CTV look very similar to OTT.

    The difference between CTV and OTT

    Some people confuse CTV with OTT. Indeed, some of the principles overlap, yet in nature the difference is fundamental. OTT stands for Over-The-Top. ‘Over’ means video content moving beyond or rather above traditional television technologies like cable or satellite. It is a media service offered to viewers via the internet, a digital platform that delivers videos on-demand or live streams. Simply put, OTT and CTV are the two sides of internet-connected video streaming mechanism. Only the former one is responsible for software, while the latter delivers hardware to run it. That’s why both abbreviations are often used together when explaining streaming technology. Typical examples of OTT services are Netflix, Amazon Prime Video, Apple TV+, Disney+, YouTube, and other video streaming apps that run on CTV. 

    Advantages of CTV/OTT

    To begin with, CTV/OTT is much more versatile since it’s compatible with almost any device. The video-on-demand streaming model allows viewers to watch their content any time of the day, as long as they are in a place that has a stable internet connection. Even live shows like sports events are recorded on most live stream services so users could watch them later. 

    Secondly, the open competition on the content market naturally contributes to a variety of services/platforms with deep personalization options, unique content offers, and generous welcoming plans for new users. Services like Netflix pioneer the entertainment industry with machine learning algorithms that suit user preferences best. The same personalization algorithms also benefit advertisers on OTT platforms that support ads. This unlocks additional data that can be used for precise targeting and hence improved conversion rates compared to linear TV.  

    Thirdly, unlike linear TV, its streaming counterpart provides much more accurate data analytic tools and metrics to measure or predict ad effectiveness. These metrics are important for planning marketing strategies and enhancing ad campaigns. 

    What is CTV advertising and how does it work? 

    We’ve mentioned Netflix and other paid streaming platforms already. Most of them collect revenue from paid monthly subscriptions for their video libraries. However, some CTV/OTT services prefer to monetize their content partially or entirely through selling ad spots to advertisers. 

    Buying ads on CTV is very similar to how typical digital advertising works. Most CTV ads are delivered programmatically. So, let’s look at how this happens. Roughly put, the connected TV advertising industry can be divided into three platform types: Demand-Side Platforms (DSPs), Supply-Side Platforms (SSPs), and Data Management Platforms (DMPs).   

    • DSPs coordinate the buying side of the CTV ad business by providing access to publishers’ video content inventory. The DSP’s responsibility here is to summarize and optimize impressions so that buyers can purchase them automatically. 
    • SSPs are sellers’ operators. In this transaction, publishers act as content owners, create the spots for future ads, and place associated listings on a SSP. Publishers can also offer their inventory on exchange platforms, but that is a topic for a separate talk. Deals are closed via automatic auctions to speed things up. Algorithms compare buying requests with selling offers and close the matching pairs.
    • DMPs serve as technical mediators in this ad tech circulation. The main functions here are gathering targeting parameters for precise offers. Ad buyers are able to adjust their buying specifications like user interest, location, or demographics. Then, a DMP sends these requests to a DSP and the auction begins.

    Is CTV/OTT going to change the ad industry?

    Conventional TV remains king but no king rules forever. Reports and statistics of the recent decade illustrate that slowly but surely traditional TV is losing its dominant position in terms of both the number of active users and the amount of ad money invested in favor of connected TV. And for as long cord-cutting is a trend, this might happen in the nearest decade. 

    The main reason for that lies in the redistribution of video watching hours from cable/satellite TV shows to over-the-top platforms like Netflix or YouTube. And the younger an audience is, the less time they spend watching via cable. This naturally draws advertisers away from traditional TV networks. What also drives them away is the outdated targeting system that pours big chunks of ad budgets down the drain. This evolution further accelerates in the digital field. Connected TV therefore seems to be the right successor to the traditional TV ad industry and has the potential to become something even bigger than that. The technological capabilities are far superior while the audience is essentially the same.  

    For instance, CTV networks featuring Dynamic Ad Insertion and Server-Side Ad Insertion technologies can target individual streams exclusively for each viewer. This selects the most fitting ad unit possible for that particular user considering his/hers location, content preferences, viewing history, demographics, and other parameters. And as we know, the relevance of ads directly impacts their effectiveness. 

    Advertising trends on CTV/OTT

    As CTV becomes the ‘MVP of all TVs’, advertisers can no longer ignore its potential and vividly follow their younger audiences to new platforms. And in doing so they are increasing their marketing budgets allocated to CTV. In 2022, according to MAGNA, US CTV advertisers will increase their ad spend by 28.4% compared to 2021, reaching over $7 billion. 

    Another indicative trend related to CTV shows that despite CTV ads being long and unskippable, viewers tend to tolerate them more than on other digital platforms or traditional TV. According to the Interactive Advertising Bureau, 63% of users don’t mind watching commercials if they get their content for free. At the same time, CTV ads attract more attention reaching up to 95% completion rates. This is partly due to the lack of ability to skip them in most cases, however, that does not negate increased engagement and brand awareness. 

    Conclusions 

    CTV is building its popularity at a dizzying pace while traditional television is slowly fading away. Cord-cutter and cord-never audiences that were among comparatively minor viewing groups have now become the dominant segment of public entertainment while being exclusive for CTV/OTT. Thanks to that, Connected TV has become one of the most lucrative investment fields in the digital domain. From the technological side of things, Connected TV provides tangible benefits for viewers, publishers, and advertisers. At the same time, international statistics suggest that CTV will surpass traditional TV by both audience and investment rates in the coming decade, so it’s the right time for marketers to join the new trend if they haven’t already.