Today, 39% of total TV viewing time takes place on streaming TV. More than 4 in 5 US households have a video subscription service. Over half have a smart TV they use regularly.
Streaming is the future of television, so advertisers had better be ready to make the most of the channel. Understanding who's watching Connected TV, how to make the most of your ad budget, and optimizing campaigns for an ideal TV viewing experience is key to crafting an effective CTV strategy.
The good news for advertisers is that ad-supported streaming is growing rapidly. While part of streaming’s initial appeal was the ability to sidestep ads, many consumers now opt into ad-supported options to reduce subscription fees. In fact, 86% of streaming viewers watch some ad-supported content.
This trend is especially clear when looking at the growth of Free Ad-Supported TV (FAST), which reached over 100 million viewers in 2023, and has more than tripled since 2018.
FASTs like The Roku Channel, Tubi, Pluto TV, and Amazon’s FreeVee claim a growing portion of total time spent watching TV—they’re now real competitors for subscription-only platforms. In the first half of 2023 alone, nearly 1 in 5 US consumers replaced a paid subscription service with a FAST, opting to watch ads in exchange for free content. Anticipating the shift toward ad-supported viewing, Netflix and Disney+ both released ad-supported tiers in the last couple of years, creating even more inventory options for advertisers.
Which advertisers are happy to purchase. In 2023, CTV ad spend reached $25 billion and 84% of global marketers said they included streaming in their media plans. We’ve found in our own research that CTV is the channel US marketers are most likely to increase spending on in 2024. Pretty impressive for a channel that just five years ago was attracting a mere $7 billion in ad spend.
While CTV offers a new way for advertisers to reach growing audiences, the evolving streaming landscape creates a unique set of challenges. Especially related to cost.
CPMs (Cost Per Thousand Impressions) on streaming platforms are significantly higher than what can be achieved with linear TV. Plus, the most well-known streaming platforms are also the most expensive. When Netflix released their ad-supported tier, news broke that the streaming leader would charge a $60 CPM. On top of that, advertisers couldn’t choose programming, had limited targeting options, and no third-party measurement. And while Netflix’s ad offering has evolved—in 2023, they partnered with Nielsen to provide measurement insights, and CPMs have now dropped to an average of $47—it’s still far from ideal for performance campaigns.
But high CPMs aren’t all that makes Connected TV so pricey. When inventory is bought programmatically, intertwined with the base cost are tech fees.
• Third-party targeting costs
• One to many SSP fees
• Ad exchange fee
• DSP platform fee
• DSP data transfer fee
• Fraud reduction
• Advanced reporting fee
• Video ad serving fee
• Managed service fee
Each added layer of cost drives up the overall price brands pay for media and makes it even harder for a great CTV strategy to drive ROI.
Fortunately, there are strategies and techniques to reduce the cost of CTV media.
While it can be tempting to limit spend to a handful of premium publishers, this is not efficient. (Remember how pricey Netflix is!) Your audience watches across multiple platforms, so look for ways to reach them through less expensive options. In the end, your campaign may still include top publishers like Netflix, Hulu or Disney+. But it shouldn’t be only those few.
Buying inventory directly from publishers tends to result in spending your budget very quickly. To get access to a wide variety of inventory sources at varying price points, brands should use a demand-side platform (DSP). A DSP also provides crucial levers to control frequency and measure performance across all platforms.
The streaming landscape is riddled with fees. Some are for essential services, others are not. Align with a partner who’s transparent about costs and who charges solely for the tools and tech required to reach your goals.
One big challenge for CTV advertisers is managing ad frequency. High frequency rates are the number one problem reported by streaming and CTV viewers. They’re simply shown the same ads too often.
Unfortunately for advertisers, overexposure can deter the very consumers you’re trying to attract. In a study by IPG and Nexxen, intent-to-purchase dropped 16% among viewers who saw the same ad six times. That means you’re spending more to advertise repeatedly to the same viewers—only to have that spend reduce the likelihood those viewers become customers. That’s not only a waste, it’s actively harmful to your brand.
Frequency capping, or setting the max number of times a viewer will be shown your ad over a specific time period, ensures ads reinforce your message without irritating your audience. We recommend setting a fairly strict cap, especially since our data shows the first impression is the most impactful. Your budget is better used reaching fresh viewers than repeatedly trying to convert viewers who’ve already chosen not to act.
Streaming TV can be viewed across smart TVs, mobile devices, tablets, and laptops. It’s this convenience and flexibility that makes it appealing to consumers. But as an advertiser, having your ad play on an iPad is not the same as it playing on an actual TV set.
Some publishers cite streaming CPMs that bundle TV inventory with mobile viewing. This makes CPMs appear lower because mobile inventory is less expensive. But long-term impact and memorability are far greater when an ad shows up on a TV set while the viewer settles into their couch with a bowl of popcorn.
When partnering with a DSP or TV agency, make sure to clarify the type of inventory included in your buys to help your ads show up where they’ll have the greatest impact.
Buying CTV advertising requires blending traditional TV advertising strategies with the nuances of digital media buying. By carefully managing costs, leaning into tech like DSPs, and using frequency capping, advertisers can optimize their CTV strategy and effectively navigate the CTV landscape.
Here's where Annika, our media-buying AI becomes helpful. Annika’s tech was built with the goal of solving the biggest challenges facing performance brands looking to capitalize on CTV’s potential.
Learn more about how Annika reduces CTV costs or connect with us to discuss how CTV could drive results for your business.