Last week’s Connected TV Ad Summit, with 46 speakers and 14 sessions, was chock full of insights from executives on the front line of connected TV advertising. Importantly, the speakers brought a diversity of perspectives; ad buyers from agencies, ad sellers from content providers, technology providers enabling CTV advertising and analysts studying and forecasting the industry.
As the conference host and curator of all the sessions and questions, it was a golden opportunity to fully immerse myself in understanding the critical industry issues. I’ll be publishing a debrief document with all of my key takeaways, but for today, I just want to share one overarching theme that crystallized: a connected TV advertising flywheel is here, and it's only going to accelerate.
The flywheel concept is well-known to all of us; the idea that when interrelated elements of a business or industry reinforce one another, the momentum of the overall whole is accelerated. For me, the best illustration of the flywheel remains Jeff Bezos’s description of the role video plays in Amazon Prime, in his interview at the Code Conference in 2016. Summing up video’s interrelationship with Prime and the resulting flywheel, Bezos said simply, “When we win a Golden Globe, it helps us sell more shoes.”
Back to the CTV advertising flywheel, the three core components are 1) the large and growing base of households with active CTV devices including players, sticks, smart TVs, etc., 2) the proliferation of ad-supported and hybrid paid/ad-supported streaming services, each one with ever-better content and 3) the robustness of CTV ad monetization itself and how this is driving more spending into the category.
In Bezos’ interview, he said that when it comes to flywheels, it can be hard to identify the true launch point. I don’t think that’s the case with the CTV ad flywheel; the starting point is clearly the base of CTV devices that was predominantly driven by consumers wanting to watch paid, SVOD content like Netflix, Amazon Prime, Hulu, etc. It is only because these services - and the billions in content investments that were made - that there are now 82% of U.S. households with a CTV device, according to data Bruce Leichtman at Leichtman Research Group presented last week.
It’s not just the significant breadth of CTV penetration; it’s the depth too. In Bruce’s presentation he cited his survey data finding that CTV households have a mean of 4.1 CTV devices and that incredibly, there are now 250 million MORE CTVs in American homes than there are pay-TV set-top boxes. Over half (54%) of 18-34 year olds now watch a CTV daily, but the biggest growth may actually be among 55+ year olds, where only 22% watch daily.
Ad-supported streaming content
CTV households represent an enormous, existing total addressable market (TAM) for ad-supported streaming services, both on-demand and free ad-supported TV (FAST). Unlike, for example, prospective mobile app developers who had to wait while the base of iPhone and Android users reached scale (the classic chicken-and-egg problem of devices and services), the ad-supported streaming content industry had a ready-made gigantic TAM, thanks to SVOD providers and the low price / low margin, penetration strategies of Roku, Amazon Fire TV and others.
While initial AVOD/FAST services consisted mostly of licensed content, these services built sizable audiences, and with their robust economics, are now moving up the content food chain to create their own originals, in turn differentiating themselves and driving more viewership, loyalty and monetization. At last week’s conference, executives from Crackle Plus, Tubi, A+E Networks, Bloomberg, Roku and others all highlighted their originals initiatives and the strategic role they play.
CTV ad monetization
“Advertisers follow the eyeballs” is an old adage - and one that is certainly playing out as more people drop or never subscribe to pay-TV or watch linear TV in the first place, instead choosing from the unlimited variety of streaming options. As has been widely reported, this alone is driving traditional linear TV advertisers to shift their spending to CTV advertising, especially those advertisers trying to reach younger audiences who are dropping linear TV altogether. In the U.S. alone there’s approximately $70 billion of linear TV spending annually, so even minor shifts have a major impact on CTV’s growth.
But with CTV advertising, it’s not only a case of advertisers following the eyeballs because they have to in order to stay relevant. Rather, CTV offers advertisers a better model. This was a point raised multiple times last week, but which Mike Law, President of Amplifi / Dentsu said most eloquently, “What's so powerful about CTV and streaming for us is that it sits on a digital platform, so we can get the best of both worlds. We can think about CTV throughout the full (marketing) funnel, it can reach mass audiences and sit at the very top of the funnel across all demographics that exists in the marketplace today. But it also has the ability to go all the way to the bottom of the funnel, and create one-to-one addressability options.”
CTV’s full funnel flexibility is extremely appealing to advertisers in an age when every dollar of spending is heavily scrutinized, where return on ad spend (ROAS) is paramount and where precisely targeted and measured media options like Google and Facebook have dramatically raised buyers’ expectations. CTV’s digital features mean it appeals not just to traditional linear TV buyers who must adapt, but also to mid-to-lower funnel, performance-oriented advertisers more focused on targeting than reach, simply because CTV will be a more compelling option.
Speaking last week, Needham & Company analyst Laura Martin said she believes there’s another $60 billion per year of ad-spending, just in the U.S., by these “Internet-first” advertisers who are already moving some spending to CTV (for its part, Roku has made no secret that performance advertisers are its fastest-growing category). Related, analyst Michael Nathanson at MoffettNathanson envisions a “mid-top layer” of the marketing funnel that will grow from approximately $19 billion in 2021 to $53 billion in 2025 in the U.S., a 29% compound annual growth rate (he sees YouTube being the dominant beneficiary with other AVOD providers also getting big slices).
To be sure, it is still early days for CTV advertising pulling over both linear TV and performance advertisers. Eric Haggstrom from eMarketer / Insider Intelligence said last week that CTV advertising in the U.S. is currently around $13.5 billion billion, a fraction of linear TV, though he forecasts it jumping to over $27 billion by 2025.
And last week’s speakers were candid about the numerous challenges in CTV advertising that still need to be addressed in transparency, frequency capping, measurement, creative optimization and more. But they also noted that CTV’s reliance on first-party data as an identifier, rather than cookies which are being phased out, is yet another big positive for CTV advertising.
That’s a mouthful, so for those looking for the TL;DR summary: there is a CTV ad flywheel that’s being driven by a large base of CTV households, this TAM is attracting a huge amount of high-quality free ad-supported streaming content, funding for it is coming from a robust CTV ad model, which is drawing spending from two gigantic pools of ad spending, linear TV and mid-to-lower funnel performance budgets.
One last piece to be added is that as the flywheel spins faster, viewers will benefit from seeing fewer, more relevant ads, improving their experience - and in turn motivating them to spend more time watching ad-supported content. A competition for “lowest ad load” bragging rights has already broken out among key players like HBO Max, Peacock, Roku and others (Colin had a good piece on the “how low can ad loads go?” question earlier this week).
There is ample reason to believe that the CTV ad flywheel is already in place, and that it’s only going to accelerate. I’ll be elaborating on all of this on our Inside the Stream podcast later this week and writing a lot more about it in the coming months. I welcome your feedback.
Reminder all of the Connected TV Ad Summit session videos are here and here.