OTT Carves Out A New Local Ad Marketplace — And Advertisers Are All In
The term “OTT” (over the top) video services seems to be everywhere these days. A search on the term on this site shows scores of mentions of OTT in June 2022 alone. I’ll admit I wasn’t completely clear on what constitutes OTT, but I know it’s a big deal — and getting bigger, quickly — particularly when it comes to selling advertising.
With near-perfect timing, Gordon Borrell, CEO of the research firm Borrell Associates, contributed a fascinating piece in the July/August issue of TFM, the magazine for members of the Media Financial Management Association. In this feature, which is actually Part 2 of our special report on on-demand services, Borrell reveals his firm’s latest findings on OTT advertising and why it has suddenly become such a hot ticket.
First, though, a definition of what OTT is, since some may think it only relates to the programs we watch on our TVs via Netflix, Hulu, Pluto, Peacock, YouTube, and other apps. The Interactive Advertising Bureau defines OTT as “any content streamed over the internet to a connected device [primarily connected TV, as well as other options like tablets] without the need for set-top boxes or converters.” That means The Queen’s Gambit falls in the same category as a YouTube video of a DIY refrigerator repair or a TikTok video of the latest food craze. Streamed video programs now make up 28% of all video viewing, with cable claiming 37% and broadcast TV getting 28% of the pie.
Borrell points out that Netflix, which for the time being remains ad-free, makes up 25% of that streamed video 28% chunk. Further, other services including Hulu and Peacock offer premium tiers that remove advertising in exchange for higher monthly fees. In the end, free, ad-supported streaming video services account for less than 20% of the overall TV viewing universe.
Right now, advertisers are focused on this less than 20% sliver, Borrell says, because it’s something they’re comfortable with — the old TV model they’ve known for decades. Right now, they can’t picture buying space within YouTube videos with poor production value, and TikTok clips with questionable content. Borrell contends, though, that it’s just a matter of time before advertisers embrace shorter-form video as a great opportunity to get in front of specific eyeballs.
Then there’s local OT ad spending, which has surged, according to Borrell’s latest research. Its 2022 forecast places OTT video advertising at $21.3 billion, up 20% from 2021. By 2025, the total should surpass $26 billion, representing nearly 18% of all local advertising expenditures.
Even in smaller local markets, OTT spending for 2022 is significant: Borrell estimates Baltimore will spend $168 million, Cedar Rapids, Iowa, will spend $66.1 million and Augusta, Ga., will invest $32.5 million in local OTT.
Borrell calls video advertising the “third wave” of the internet: the first wave began in 2000, when people discovered search engines such as Yahoo and Google to explore what the “net” offered. The second wave occurred with the rise of social media, as consumers were now able to find other people on the internet, thanks to sites like Myspace, Facebook, and later Twitter and Instagram. The third wave is unfolding now, as consumers have learned to become content providers themselves, posting videos of themselves on YouTube, Instagram, TikTok and other social sites — and opening the door for advertisers to reach their followers. Within four years OTT spend will outpace that of paid search, Borrell forecasts.
Most of the OTT ad spend isn’t being moved from existing broadcast budgets, surprisingly. According to Statista, in 2019 alone, YouTube’s ad revenue nearly equaled that of NBC, CBS and Fox combined — and has grown 90% in the past two years. In parallel, ad spend for national network advertising for those same broadcast networks declined just 2%, so the money must be coming from elsewhere.
Overall, local OTT spend has grown 40% since the pandemic began. By 2021, local OTT video ad revenue grew to $17.9 billion, making up some 13.7% of all money spend on local ads, and almost twice what was spend on local spot TV.
Local OTT sales and marketing is blooming, too, as a result of the surge of interest in purchasing local OTT advertising. Most small businesses are not highly sophisticated when it comes to producing ads and many are unsure where to start, so local media sales reps — from TV, radio, and newspapers — are evolving to become “local media sales consultants,” selling video production and video placement for local businesses. An interesting phenomenon, considering most of those businesses buy search engine marketing and social media ads directly from Big Tech players like Google and Facebook.
Borrell’s research shows local businesses that buy OTT advertising availabilities were spending more on video-streaming service opportunities than what they spent on newspapers, direct mail or social media, and just slightly less than radio advertising, excluding the costs of OTT video development.
So where exactly are budgets for video streaming advertising coming from? Different sources, as it turns out. A third of the advertisers who responded to the Borrell survey said they created new budget for OTT ads in 2021. Half said they took money from another media budget. While you might assume that TV or cable represented the largest erosion in media budget, 28% of newspaper advertisers said they carved from their print budget to purchase OTT ads; and 17% of radio buyers said they decreased their radio spend.
It appears that broadcast, cable, outdoor and print media are starting to turn to OTT as a sure bet for increased ad sales. In April 2022, more than one-third of 220 local media managers surveyed by Borrell said OTT was their hottest-selling digital product. For 18%, of them, it was already their No. 1 revenue producer among all digital products, and half of all TV managers who responded said streaming video was their top revenue producer.
OTT is clearly on a roll, and it’s doubtful there’s any turning back. Larger advertisers with more money to experiment are leading the pack, Borrell found. Among more than 2,400 local OTT users surveyed, the total average annual ad budget was $370,173 — more than five times the annual ad budget of non-OTT users ($68,632). And smaller businesses willing to dip their toe in the OTT waters are likely to come out on the winning side of the ledger.
Joe Annotti is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. He can be reached at [email protected] and via the association’s LinkedIn, Facebook, Instagram and Twitter accounts.