OTT Advertising Opportunities Abound for Savvy Local Media Players

Today OTT is often referred to alongside other acronyms like VOD CTV VPP and MVPD or video on demand connected TV video partner program and multichannel video program distributor for any of you playing catchup And we39re confusedRelax We39re not going to try to explain any of those related terms Instead we39ll offer a practical financial perspective how to understand the sudden explosion of video advertising and how a media company might capitalize on it Moreover we39ll offer a unique perspective on what39s become the hottest new revenue opportunity for many media companiesBy now after nearly three decades of hearing about disruptive innovation we should be quite familiar with the pattern that OTT is carving across the media landscape Like any disruptor OTT isn39t feeding off traditional revenue such as broadcast and cable dollars so much as it39s creating an entirely new marketplaceThe overwhelming majority of OTT buyers have never purchased TV advertising and more than onethird are actually adding money to their budgets to pay for it instead of taking money from something else according to research from my company Borrell Associates Yet viewed through the lens of a linear TV business model this new and phenomenally large OTT opportunity is difficult to seeWhat Exactly Is OTTYou may think of OTT as the programming we watch on our living room TVs through YouTube Hulu Pluto Peacock or other apps The Interactive Advertising Bureau IAB has a broader definition declaring OTT to be quotany content streamed over the internet to a connected device primarily connected TV as well as other options like tablets without the need for settop boxes or convertersquotBy that definition the 71minute finale of Ozark is OTT a fourminute YouTube video from a backyard mechanic on how to clean a carburetor is OTT and a grainy eightsecond TikTok video of a partygoer falling into a pool is OTT And everything in betweenAdvertising inserted within longerform programs is the smallest part of the OTT opportunity Looking narrowly at the quotTV viewingquot portion of the IAB39s definition of OTT programs watched via streaming platforms accounted for 28 of all video viewing That39s according to eMarketer which puts broadcast TV viewing at another 28 and cable viewing at 37Breaking down that 28 of all streamed TV viewing figure at least 25 is devoid of any advertising That39s Netflix39s portion Other platforms like Hulu sell premium access that strips out the advertisingBottom line at least 80 of adsupported TV viewing is still done via cable broadcast or satellite connectivity And because Netflix and many other OTT platforms are advertisingfree adsupported streaming video services garner less than 20 of the overall TV viewing pieYet the longform streamed programming is all that a lot of people in the media industry focus on mainly because it fits nicely into the old TV model we39ve known for generations Rambling amateurish YouTube videos and short racy TikTok clips seem well too small to pursue and not a good fit for the business modelAnd that39s the hallmark of a disruptor it starts out small cheap and below the standards of the industry it will eventually disruptMake no mistake localmarket OTT ad spending is significant Borrell39s 2022 forecast pegs the total for OTT video advertising at 213 billion up 20 from 2021 By 2025 the total is forecast to surpass 26 billion representing nearly 18 of all local advertising expendituresFor smaller markets we estimate that the amount spent on OTT is already in the tens of millions of dollars In Augusta GA local businesses are forecast to spend 325 million on it this year In Baltimore 168 million In Cedar Rapids 661 million In Davenport IA 446 millionHow has the spending become so large First consider that size is relative Those who feel the most disrupted in this case broadcast TV and cable are more focused on something vital preserving their share of existing customers39 ad budgets So that39s all the OTT spending they tend to seeHowever most of the money for OTT is not being shifted from broadcast TV budgets to OTT budgets Here39s one bit of proof according to Statista YouTube39s ad revenue nearly matched that of NBC CBS and Fox in 2019 and has grown a phenomenal 90 in the past two years At the same time national network advertising for those three broadcast companies declined about 2 So the money being plowed into YouTube advertising clearly isn39t being carved from network TV budgetsAnother phenomenon of disruptive innovations is that nearly all early growth is derived from new business not disrupted business Here39s proof in 2021 91 of local businesses buying OTT weren39t broadcast TV buyers These early adapters won39t collapse TV advertising because they don39t have any TV budgets to tapAt the local level where we39ll remain for the rest of this article the amount of money that businesses spend annually on streaming video advertising or OTT has grown 40 since the pandemic In 2021 local OTT video ad revenue had swollen to 179 billion accounting for 137 of all locally spent advertising and nearly twice as much money as was spent on local spot TV according to Borrell estimatesLooking at the internet from its earliest stages of advertising video represents the third wave The first started in 2000 as everyone turned to search engines such as Yahoo and Google to explore what the internet had to offer The second wave began as people started searching for something else amp8211 other people Social media sites such as Myspace Facebook Instagram and Snapchat were bornThe third wave is unfolding now as broadband speeds have made video more practical and as higherquality smartphone cameras and microphones have made everyone a video content provider The growth of OTT is so great that within four years spending is forecast to outstrip that of paid searchUnlike search and social media advertising however the video wave has far greater potential to remain a local phenomenon That39s because it39s exceedingly easy to purchase keywords such as quotFord dealership in Albuquerquequot or to create and boost a Facebook post about a BOGO offer at your local dress shopOn the flip side it39s not exceedingly easy to create a promotional video How do you make it look and sound better than a Zoom video from your couch There39s lighting to consider A script What to wear Where exactly should it be distributedThe Local OpportunityEnter a local media sales consultant Roughly twothirds of newspapers TV stations radio stations and cable systems are also peddling video production and video placement for these local businesses And as stated earlier the buyers are not sophisticated TV advertisers that often come to the table with an idea of what they want to place and how it should look They need advice They need media expertiseTo further understand how local businesses are buying OTT Borrell asked who39s selling it to them Turns out that nearly twothirds of those who buy OTT are purchasing it from a local media sales rep And not all are working with TV reps In fact more than one in five are buying OTT from a radio sales rep and about one in ten buys from a newspaper sales rep It39s further proof that video is a local phenomenon especially when considering that the vast majority of those who buy search engine marketing and social media buy directly from Google and FacebookNot all businesses that market themselves with OTT are actually buying advertising avails within streamed TV programs A survey of 2881 local ad buyers in 2021 showed that while 41 said they engaged in streaming videoOTT marketing for their business only 14 about onethird of all businesses who use OTT marketing were actually quotbuyingquot OTT advertisingAverage spending among local businesses using OTT marketing last year was 31316 which is 10284 more than businesses that bought OTT advertising alone This indicates they39re spending a significant amount of money on the development of those videos amp8211 another source of income for those local media companies that have ventured into offering marketing services as a pathway to creating and keeping new customer relationshipsOn average local businesses that buy OTT advertising availabilities were spending more on videostreaming service opportunities than their average spending on newspapers direct mail or social media and slightly less than buyers were spending on radio advertising That excludes the amount they spend on OTT video developmentThe budget for streaming video advertising comes from various sources Onethird of advertisers that responded to the Borrell survey said they created new budget in 2021 to spend money on OTT while half said they carved the money from another media budget Surprisingly it wasn39t just cable or TV spending that eroded Twentyeight percent of newspapers advertisers said they trimmed their print budget to spend on OTT advertising and 17 of radio buyers said they trimmed radioWhether broadcast cable outdoor and print media will be able to seize this new opportunity remains to be seen Many already have embarked on that path In fact in April 2022 more than onethird of 220 local media managers surveyed by Borrell said OTT was their hottestselling digital product For 18 it was already their No 1 revenue producer among all digital products Half of all TV managers surveyed said streaming video was their top revenue producerThere is much growth ahead for OTT A leading indicator is the type of business that currently buys it It39s the larger advertisers with more money to experiment Among more than 2400 local OTT users surveyed the total average annual ad budget was 370173 more than five times the annual ad budget of nonOTT users 68632When larger advertisers begin experimenting and getting results the environment becomes less speculative for the smaller businesses There is much growth ahead and much opportunity for local media companies in this fastgrowing areaThis article was originally published in the JulAug issue of TFMGordon Borrell is CEO of the research firm Borrell Associates He can be reached at 757 2216641 or gborrellborrellassociatescomClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillagecomMyersBizNet

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OTT Advertising Opportunities Abound for Savvy Local Media Players

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