What Is OTT Advertising? Understanding the Streaming Ad Landscape

Over-the-top (OTT) streaming has revolutionized how consumers access entertainment content.

16:42 29 January 2024

Over-the-top (OTT) streaming has revolutionized how consumers access entertainment content. Popular streaming platforms like Netflix, Hulu, Amazon Prime Video, and Disney+ have millions of monthly subscribers who binge-watch their favorite shows and movies.

This seismic shift in viewing habits has massive implications for advertisers and marketers. Many companies are still figuring out how to effectively leverage OTT advertising opportunities. Below, we explain what is ott advertising.

What Exactly Is OTT Advertising?

OTT advertising refers to video advertising on over-the-top streaming platforms. Instead of broadcasting ads on traditional cable and satellite TV, brands can now target cord-cutting consumers who watch content through internet-connected devices.

OTT advertising includes multiple ad formats, such as pre/mid/post-roll video ads, native display ads, sponsored content, and branded entertainment. Marketers buy OTT ad inventory through programmatic channels, direct deals with publishers, or a combination of both approaches.

The OTT Ecosystem

The OTT landscape consists of three main models:

Subscription video-on-demand (SVOD) – Platforms like Netflix and Amazon Prime, where users pay a monthly fee to access content ad-free.

Advertising video-on-demand (AVOD) – Free, ad-supported platforms like The Roku Channel, Tubi, and Pluto TV.

Hybrid SVOD/AVOD – Services like Hulu and Peacock that offer an ad-supported option or let viewers upgrade to an ad-free experience.

Each model provides its advertising opportunities, whether that involves partnering directly with pure-play AVOD services or working with SVOD/hybrid publishers to integrate brands into original programming.

The Rise of OTT Viewing

In 2021, over 209 million Americans streamed video content via connected devices. OTT platforms now account for 31% of all TV viewing time in the U.S. The average American subscribes to four streaming video services and watches 9 different services per month.

Cord-cutting continues accelerating rapidly. Over 46 million households have canceled cable or satellite TV subscriptions as of Q3 2022. That number is projected to reach 55 million by the end of 2024.

As linear TV declines, OTT captures more share of ad budgets. According to eMarketer, total OTT ad spending will surpass $21 billion by 2023.

What’s Fueling the OTT Surge?

Several key factors make OTT an extremely attractive medium for brands:

Precision ad targeting – Streaming publishers leverage first and third-party data for advanced audience segmentation based on demographics, interests, behaviors, purchase intent, and more.

Younger viewers – cord-nevers (consumers who never signed up for cable) are especially hard to reach via linear TV. OTT provides access to younger millennials and Gen Z audiences.

Viewability – 100% viewable impression delivery is the norm in OTT. Fraud/bot traffic is minimal due to one-to-one content streaming.

Addressability – Most OTT platforms and devices support addressable ads that can be personalized and dynamically inserted based on the viewer.

Interactivity – OTT ads can incorporate interactive or “shoppable” elements to drive direct consumer response and e-commerce.

Flexible ad formats – In addition to traditional video ads, OTT provides opportunities for branded entertainment, custom show integrations, and innovative ad experiences.

Measurement and attribution – Robust data and analytics provide impressions, completion rates, concurrency, frequency, conversion data, and more.

With all the VC money pouring into ad-supported OTT services, brands have an expanding array of options to tap into engaged streaming audiences. Global OTT advertising spending is on pace to exceed $100 billion by 2027.

OTT Advertising Options and Strategies

Subscriptions and ad support now coexist across the streaming ecosystem. This convergence of models opens the door for advertisers to pursue several approaches:

AVOD Inventory

OTT publishers focused exclusively on ad-supported models represent a major growth area. Examples include:

Tubi – claimed 51 million monthly active viewers as of May 2022. Viewership rose 48% YOY in Q1 2022.

The Roku Channel – reached 100 million people in Q1 2022 including 70 million active accounts.

Pluto TV – claimed 68 million monthly active users streaming over 300 linear channels as of February 2022.

Fox Corporation’s Tubi, Roku, and Vizio account for over 50% of AVOD streaming, but competitors like Samsung TV Plus, Pluto TV, and Amazon’s Freevee (formerly IMDb TV) are all rapidly expanding.

Pure-play AVOD offers a flexible canvas for marketers to fund content development, sponsor custom brand integrations, or simply buy millions of digital video impressions targeted to custom audiences.

SVOD Brand Integrations

For subscription streamers, integrating brands into original programming can enhance perceived realism while providing marketers plotlines and screen time to subtly promote products or services.

While Netflix, Disney+, and others still avoid traditional ads, sponsored integrations strike a balance where everyone wins. For example, in season 4 of Netflix’s megahit Stranger Things, Coca-Cola products appeared in over 50% of all episodes. Brands like Domino’s Pizza also benefited from scripted cameos.

As studios produce more content to feed insatiable subscriber demand, they’re increasingly open to commercial collaborations. Brand objectives may focus on broad awareness, positive brand associations, or driving specific business outcomes.

Hybrid AVOD/SVOD Services

Major media brands like NBC, Fox, and Paramount have all launched hybrid OTT services that blend subscription and ad models.

Platforms such as Peacock, Tubi, and Paramount+ with advertising deliver both premium content and a flexible ad platform.

Advertisers can sponsor originals, purchase standard media, or explore creative ad formats. Hybrid OTT provides unique targeting capabilities by leveraging first-party subscriber data.

Programmatic OTT

The rise of programmatic OTT parallels linear TV’s transition towards audience-based selling versus traditional demo guarantees.

In 2022, over 80% of OTT ad transactions are expected to flow via programmatic direct pipes and private marketplaces. This streamlines media buying and provides impression-level transparency.

Brand safety controls also give advertisers confidence their video ads will only appear within approved content. Advanced contextual tools now screen billions of media signals daily to match ads to relevant streaming video.

Measurement Remains Critical

Despite OTT’s momentum, measurement gaps challenge budget allocation and impede forecasting. Multi-touch attribution is difficult across streaming apps and devices.

As walled gardens open up, the integration of set-top-box data, automatic content recognition (ACR), panel-based measurement, and first-party publisher data will provide marketers with unified analytics. Until then, marketers rely heavily on custom attribution models plus individual publisher reporting.

The Streaming Ad Forecast Looks Bright

Rising consumer adoption of ad-supported OTT video paints an extremely bright picture for marketers. According to Statista, AVOD ad revenues are projected to grow at a 43.2% CAGR from 2020-2027 to reach $24,250.00m by 2024.

• Overall, OTT advertising provides brands:
• Access to younger viewers shifting away from linear
• Advanced audience targeting capabilities
• 100% viewable and fraud-free premium video inventory
• Innovative opportunities for custom-branded content
• Viewer interactivity/engagement
• Transparent delivery metrics

As OTT platforms prioritize advertising, ad loads remain reasonable to preserve the viewer experience. Ad frequency caps also prevent oversaturation.

With an addressable audience surpassing 200 million, OTT advertising finally provides reach and targeting to challenge broadcast and cable.

The streaming revolution has fueled a new video landscape where nimble advertisers connect with captive audiences. OTT advertising will soon be an anchor for all omnichannel media plans targeting passionate viewers in a thriving new ecosystem.