What is OTT Advertising & Is It Beneficial for Local Businesses?

The world of OTT is so close to us and yet so far away. On the one hand, we are VERY familiar with Netflix and YouTube, and we either have or know someone with a smart TV or a Roku. But on the other hand, we (or at least most of us) have no idea what OTT even means. But don’t worry, that’s why I’ve written this guide.

You during this post.

In it I’m going to break OTT media and advertising down into plain English so you can understand:

• Exactly what OTT means and how OTT media is delivered.
• How OTT advertising works, including pricing models and performance metrics.
• The benefits of OTT advertising (even for local businesses) and its challenges.
• Tips for creating engaging and effective OTT video ads.

With some laughs along the way.

Shall we?

What is OTT?

OTT stands for over the top. And here’s why.

So the actual term for cable box is set-top box. Because back in the day when TVs were big clunkers and cable boxes were small, they sat on top of the TV. But even when screens became flat and cable boxes got placed elsewhere, the term set-top box remained.

Memories, anyone?

Streamed content, on the other hand, does not require a cable box because it’s delivered via the internet. It bypasses, or goes over, set-top boxes. Hence the term over-the-top.

Is OTT the same as connected TV?

OTT and connected TV (CTV) are not the same. CTVs are just one device on which you can watch OTT media.

OTT devices

Basically, any device that displays video and connects to the internet is an OTT device. This includes:

• Smartphones, computers, tablets, laptops.
• Connected TVs
  • Smart TVs (Apple TV, Amazon Fire TV, Android TV).
  • Regular TVs using a device (Roku, Amazon Fire TV Stick, Chromecast).
  • Regular TVs using gaming consoles.
  • Wifi blue-ray players.

What are OTT services?

OTT services are the apps that stream over-the-top content to your device.

There are several OTT services and apps out there, and they follow various models.

Transactional video on demand (TVOD)

• This is where you pay for individual pieces of content.
• Examples of TVOD streaming services include iTunes, Google Play, Vudu, and Vimeo.

Advertising-based video on demand (AVOD)

• Here, you can access streamed content for free, but with ads.
• Examples of AVOD streaming services include TubiTV, YouTube, Hulu, Pluto, and Crackle.

Subscription video on demand (SVOD)

• For those who don’t want to see ads, you can pay a subscription to see ad-free content.
• Examples of SVOD streaming services include Disney Plus, Hulu Plus, Amazon Prime Video, and Netflix.

Multichannel video programming distributors (MVPDs)

• These are streamed content providers where you pay for a combination of both streamed and broadcast content.
• Examples of MVPDs include AT&T Now, Sling, or YouTube TV.

So, putting it all together, 

You watch OTT (streamed) content (Schitt’s Creek) on an OTT device (iPhone) through an OTT streaming service (Netflix).

Make sense now?

What is OTT advertising?

Now that you have an understanding of OTT devices and services, the definition of OTT advertising is easier to grasp. It is the practice of showing ads to consumers when they’re watching streamed (OTT) media. You can do this in a few different ways:

• Programmatic: Here, automation is used to serve OTT ads across multiple networks through demand-side platforms (DSPs) like Rocket Fuel, MediaMath, APPNexus, TubeMogul, and more.
  Programmatic delivery has better targeting, and can be less expensive, but you have less control over where your ads appear.
• Platform direct: This is where you would purchase ads directly from the provider of the OTT device (such as Roku or Amazon Fire TV from our connected TV illustration).
• Publisher direct: Here, the exchange happens directly with the OTT service provider (our OTT streaming services above).
  Direct means of OTT advertising give you more control over where your ads are placed, but can be costly and don’t afford as much widespread exposure.

Image source

What are the benefits of OTT advertising?

There are many reasons advertisers are turning to over-the-top ads as an effective means of generating revenue.

1. Ad-supported OTT services are on the rise

According to Cox Media, the growth rate for ad-supported streaming services in 2020 nearly doubled the growth rate for ad-free streaming services. The pandemic contributed to this, yes, but the trend continues. In fact, OTT streaming increased by 115% in 2021 when compared to the previous years.

As a result, many media providers are realizing the need to either start streaming content or come up with an ad-supported version of their service.

2. Consumers prefer ad-supported streaming

But consumers don’t like ads. So why are ad-supported streaming services growing? Well, consumers are turning to streamed content just so they can watch video on demand. After all, you can do that with cable/satellite TV these days. It’s also to save money. So it makes sense that these “cord cutters,” as they’re called, prefer seeing a few ads if it means free (or cheaper) content. 

And this was true even before the pandemic. A Deloitte study showed that 62% of consumers preferred less expensive (or free) ad-supported services over more expensive ad-free services. 

Even before COVID, 62% of consumers preferred the cheaper, ad-supported streaming servicess.

Another and interesting fact is that according to Nielson, streamed content is more diverse and inclusive.

3. Better targeting

With traditional cable TV advertising, the only way to target is by choosing a designated market area (DMA). These are large regions (there are just 210 aross the entire U.S., meaning you’ll inevitably be reaching locations you don’t need (or want) to. With OTT advertising, you can target:

Image source

4. OTT advertising works without third-party cookies

Not only is streamed content becoming more popular, but it also provides opportunities for cookieless targeting. Here’s how:

• First, there’s contextual advertising—which does not require cookies because you’re targeting categories of TV/video content rather than individuals.
• Second, streaming subscription services collect a sufficient level of first-party data from users (upon registration and logged-in activity) to allow for effective targeting. So you’re using their first-party data without actually having access to it.
• Third, there are still ways to report on the effectiveness of your OTT ads using IP addresses and timestamps.

5. OTT video ads have higher completion rates

Viewers cannot skip OTT ads, install ad blockers, or change the channel (they’re only on one), so the chances of your ad being watched all the way through are much higher. Yes, they could leave the room, but with consumers viewing content on mobile devices (on the train or in the car, for example), this is not an option. You might be concerned that this creates a poor experience for your audience, but remember, they prefer ad-supported content because they’re getting it for free. In other words, they know what they signed up for.

6. Measure and optimize

If you deliver your OTT ads programmatically, you’ll be able to view performance analytics so you can understand what’s working and what’s not. This way, you can do away with ineffective and money-wasting campaigns, make adjustments to improve existing campaigns, and scale your most successful campaigns. 

7. Save money

With the targeting capabilities of OTT advertising, the higher completion rates, and the ability to measure and optimize, these types of video ads give you plenty of opportunities to make the most of your budget and maximize your advertising ROI.

In addition, it’s just one more component you can add to your cross-channel marketing strategy. Marketing across multiple channels helps to increase your brand awareness, and the more channels you have working together to enhance the others’ performance, the more successful your overall paid media strategy. 

Is OTT advertising for local businesses?

While over-the-top advertising might seem like an advanced marketing strategy unfit for small or local businesses, the facts below just might change your mind.

It’s a better form of local TV advertising

First and foremost, local TV advertising has been an effective marketing strategy for local businesses for years. OTT advertising is the same thing—just with much better targeting and reporting. Remember, you can target by zip code if you want to.

Production costs may be lower

In addition, video ads on the internet have a different look and feel than video ads on traditional TV. So between stock video, animation, voiceovers, and easy video editing software, you can create modern and appealing video ads without having to film any footage whatsoever. 

It’s not just for big brands

Most people don’t initially associate over-the-top or streamed advertising with small or local businesses, as it seems to be an advanced strategy only for the big brands. But keep in mind that OTT advertising includes YouTube advertising, which can be done through the Google Ads platform. And even if you choose to advertise on other OTT networks, you can do so through a programmatic advertising provider.

Cord cutters prefer local OTT ads

In his Street Fight article on the topic, Ramandeep Ahuja, co-founder of ZypMedia shares that a poll they ran with The Harris Poll found that 62% of viewers of free or ad-supported streaming preferred local ads over national. That percentage was higher for viewers of local streaming services as well as millennials.

More local advertisers are using OTT

Ahuja also says that in 2019, his company saw local advertisers increase their OTT media buying 127% compared to 2018, across nearly every category. Now if you look at the chart below, you can see that cable TV households continue to drop as OTT households increase.

The number of ad-supported TV households is set to exceed pay TV households by 2024. (Image source)

With local advertisers already increasing their OTT advertising budgets in 2019, when pay TV households outnumbered non-pay, it would behoove them to continue leaning toward OTT as ad-supported TV households will eventually surpass pay TV.

We can expect local OTT apps to rise

Ahuja also notes that local media companies have an advantage in that consumers love free local content (news and sports), but in order to stay competitive in today’s market, these companies will likely need to deliver that content through OTT apps. This will afford local businesses more opportunities to advertise on streamed content, with it eventually (potentially) becoming a norm.

Challenges of OTT ads

As with any strategy for, well, anything in life, there are pros and cons. So let’s take a look at some of the disadvantages of OTT

Management can be a challenge

The fact that OTT devices don’t use cookies is a good thing, but it also means that tracking performance is more difficult than on a browser. Unless you deliver your OTT ads programmatically, it is hard to view performance metrics or manage your ads in real time.

Limited regulation

Since OTT is still relatively new, there aren’t rules or regulations in place to maintain the quality of OTT ads (think about how many Google Ads disapprovals there are). And while OTT devices are less susceptible to fraud, there are still many protective regulations that are yet to be put in place.

While these are just two disadvantages, each one has a significant impact on your ability to serve quality ads, optimize your budget, and do so in a safe and secure way. It is for this reason that programmatic OTT advertising is the way to go.

How is OTT advertising priced?

To help you get even more familiar with this form of video marketing, here are some OTT pricing models and metrics to understand:

• CPM: Cost per thousand impressions
• CPV: Cost per view. How much you pay for every time a video ad starts
• CPCV: Cost per completed view. Here, you only pay for ads that have finished playing all the way through. As mentioned previously, since users cannot skip past or block OTT ads, their completion rates are much higher than in-browser ads.
• VCPM: Cost per viewable impression, which is when the ad is viewed for at least two seconds.
• VCPV: Viewable cost per view. This is VCPM/CPCV
• CPH/CPS: Cost per hour, cost per second. Here, you pay for how much total time 1000 viewable impressions generate 
• CPE/CPI: Cost per engagement/cost per interaction, such as with a lightbox ad.

Tips for creating OTT video ads

Creating successful OTT ads involves following the same best practices for any form of video advertising:

1. Target your personas

When you know your audience well, you can use language, images, and topics that resonate with the individuals in your audience. Be sure to consider all of your customer personas when coming up with OTT video ad scripts and ideas.

2. Be relatable

For the most part, traditional TV commercial ads feel “distant” from us. We feel like a brand is advertising to us. With online video ads and personalized targeting, viewers expect more relatable and personable content. 

3. Market with emotion

This is a best practice for any form of marketing, but video is the most effective medium for marketing with emotion. Use emotional images, emotional music, and emotional words to have a memorable and meaningful impact on your viewers. Can I say emotional one more time? (Yes.)

And yes, humor is an emotion.

Image source

4. Test and optimize

As you can see with “Version A” in the example above, you should also A/B test your OTT ads to identify which ones garner the most engagement. This is easy for YouTube ads since you manage them through Google Ads and can report on them via YouTube Studio. However, as mentioned a few times in this post, you can easily manage and measure your OTT ads for other networks through programmatic delivery.

5. Use voiceovers

It’s a best practice with socia media video ads to make it so that the message is communicated without the sound on. This is true for OTT ads, but you also have to remember that even though people can’t skip your OTT ad, they can tune out, switch to a different device while it’s playing, or go in the other room. So it’s important to have voiceover in your ads that convey the message with sound, as this will still afford your brand some form of exposure to your viewer (and the mere exposure effect is one of many psychological marketing effects).

Does OTT advertising make more sense now? Let’s recap.

What is OTT

• OTT means over-the-top, because it is content that bypasses, or goes over the top of the set-top box (more familiarly known as the cable box).
• Over-the-top (streamed) content is delivered through an OTT streaming service, which can follow various models: TVOD (Google Play), AVOD (Hulu), SVOD (Netflix), or MPVD (Sling).
• OTT devices include smart phones, laptops, desktops, tablets, or connected TVs (which include smart TVs or any regular TV using an OTT stick (Roku) or gaming console (XBOX). 

Why OTT advertising?

• Ad-supported streaming services are on the rise
• Consumers prefer ad-supported video content as it is the most cost-effective option.
• The number of ad-supported OTT households is set to surpass the number of pay TV households by 2024.
• Benefits of OTT advertising include targeting, analytics, cookieless advertising, and higher ROI.
• OTT advertising is a great marketing strategy for local businesses.

Tips for OTT video ads

• Go with the programmatic method of OTT advertising as you can get the widest exposure at the lowest cost, and have insight into performance metrics.
• Get familiar with pricing models, such as per 1000 impressions, views, complete views, and hours/seconds.
• Target your personas, market with emotion, be relatable, use voiceovers, and test and optimize.