Ad-tech companies and networks are pinning hopes on streaming TV, but OTT is full of headaches for marketers
- OTT advertising is hot for ad-tech companies vying for big budgets as marketers shift dollars from linear TV to connected TV devices.
- But there are also a growing number of challenges that advertisers are still trying to solve like ad fraud, frequency capping, and low-quality creative.
- Analytics firm Pixalate estimates that 19% of OTT ads are fraudulent.
- These challenges threaten to limit the $70 billion TV industry's ability to capitalize on shifting viewing habits.
Ad-tech companies are scrambling to get into over-the-top advertising and chasing marketers' lucrative TV ad budgets. But OTT isn't quite ready for primetime with advertisers.
Tech companies are aggressively pushing into TV and view the $70 billion industry as ripe for changes in using digital data to better target and measure TV ads. For example, The Trade Desk has hooked its programmatic pipes into Hulu, Roku and Sony's Crackle to sell automated ads. And Pixalate has shifted focus from sniffing out fraud on websites and apps to connected devices. All told, ad-buying firm Magna Global expects OTT to generate $2 billion this year, up 40% from last year.
However, a growing number of challenges - supply shortage, fraud, brand safety, limited data, a lack of production standards - threaten to limit the flow of ad dollars into streaming TV.
"We've definitely seen an increase in fraud being mentioned - either detection methods or ways of preventing than we have in years past," Eric Kirtcheff, SVP of global ad operations at Essence, told Business Insider. "There's been more light shined on the darker places of the internet, especially this quarter. There's still some work to be done."
At stake are big dollars for TV networks and publishers. Cord-cutting continues to grow and advertisers are increasingly asking for new tools to measure how effective their TV commercials are. As more viewing moves to connected TVs, media companies like Hulu and NBCUniversal are increasingly selling ads programatically.
OTT has a scale problem
Some agencies say that the demand for OTT inventory is outpacing supply, which is bad for advertisers and viewers alike - at least when it comes to high-quality, TV-like shows.
Kirtcheff said sellers try to make the most out of their premium video by bundling it with inventory that doesn't sell as well. The result is that OTT inventory is typically sold in bundles of web video packages that run across devices, web and mobile, so advertisers can't pinpoint the OTT inventory they're buying.
"We have all this sophisticated technology - pacing algorithms, frequency capping, audience targeting - but still my friends and family ask, 'Why do I see the same ad over and over on my OTT device?'" said Lexie Pike, product marketing manager at Brightcove, during the IAB Tech Lab's Video Summit conference in New York last week. Brightcove provides cloud software to publishers for serving video ads.
Targeting is harder with OTT advertising than display ads
With digital advertising, ad-tech companies target ads based on anonymous device IDs that house information on viewers' location, browsing history and interest. The targeting parameters are only based on data pulled from one device, meaning that advertisers can try to tailor specific messaging and creative to specific users.
OTT gets more complicated because website-tracking cookies are not as commonly used. Third-party data companies like Acxiom, Neustar and Nielsen Catalina power a large bulk of digital ads, but OTT advertisers can only use some of this data, according to the IAB.
Plus, people watch TV together, which can thwart precise one-to-one targeting.
"There isn't always a one-to-one match between device and person," said Craig Berlingo, vice president of product at Telaria, which provides software for publishers to use to manage and monetize their video content. "When you're on the phone, a device is a person. If there's three people sitting on the couch watching Roku, that is lost on keeping that device ID as one person."
Content is getting tougher to police
Similar to how advertisers have struggled to control ad placements and fraud in digital advertising, they're having the same challenge in OTT. Several sources said it's hard to say how big of a problem brand safety is in OTT because of how big the space is becoming. Roku's app store, for example, has more than 5,000 channels, up from 4,500 channels in 2017. In addition to channels from major broadcasters like CBS, Bravo and Fox, there are also channels that only only stream belly-dancing content or DogTV, which describes itself as a "TV channel for dogs when home alone."
That makes OTT a bit of a black box for advertisers.
"Given the fragmented nature of inventory and the lack of serving standards, consistent measurement is still challenging within OTT," said Rob Auger, SVP of media technology at Digitas. "It's less likely that bots are taking over your Hulu account, and more likely that fraudsters are mislabeling low-quality web impressions as premium CTV inventory."
With linear TV, publishers control the order and frequency that commercials run since they're organized into so-called pods. Similar to display advertising, streaming TV ads are purchased programmatically, making it harder for advertisers to control where their ads run.
Telaria's Berlingo said the lack of control means that his firm and others will often call publishers to hash out which ads run where - much like how TV ad pods are put together. Ironically, the back-and-forth defeats the idea that digital streaming ads are easier to target than TV ads.
"If you have a high-quality show, you don't want to have an ad that doesn't match," he said. "And from an advertiser perspective, you don't want your ad to be shown next to a competitors.' There's a lot of passing back and forth."
OTT has an ad-fraud problem
OTT is lucrative for media sellers and ad-tech companies. Programmatic OTT ad rates can range from $18 to $40, said Mark Douglas, CEO of SteelHouse, an ad-tech firm that provides self-service media-buying tools to brands. Those rates are nearly double what networks charge in direct deals because they charge additional fees to move the ads into connected devices, and buyers are willing to pay up for the promise to better target TV ads.
The high rates are seen as temporary because networks are still figuring out how to serve ads within connected devices.
"When you buy CTV and OTT inventory, there's a network, theres a supply-side platform, there's a demand-side platform, there are a bunch of additional charges," he said. "I think that's a temporary blip and those additional layers are getting ejected to bring the price back in line with closer to what the network is actually charging."
Meantime, these high CPMs attract fraudsters, said Amy King, VP of product at Pixalate, an analytics firm that specializes in uncovering ad fraud. The company estimates that 19% of OTT ads sold through programmatic pipes are invalid.
Fraudsters steal ad dollars two main ways, according to King:
- They serve a video ad using real-time bidding so that an ad plays during a break in the content, much like how programmatic display advertising works.
- They use server-side ad insertion (or SSAI), which queues up ads to a server as soon as someone starts watching a video so there's no buffering or lag time waiting for an ad to load.
Different methods are needed to detect fraud in SSAI than they are in the rest of OTT and the display, video, mobile world, she said.
For example, fraudsters can create fake IP addresses to create a spike in video ad impressions, or "device farms," which are similar to click farms that generate non-human traffic to devices. Even with TVs turned off, ads in the background can continuously load in the background for hours.
Thousands of apps are ripe for fraud because fraudsters can change the names and IDs of their apps. For example, if a marketer wants to advertise in an app, it's hard to know if the app is actually the same from one device to the next, King said.
OTT shrinks ads into digital formats
While TV ads are full-screen, OTT ads are often digital ads repurposed for streaming TV and don't render well on bigger screens.
"If it's pixelated or if an advertiser used an ad that's meant for a phone and then it's three feet tall [on a screen], that's not going to work," said Telaria's Berlingo.
Likewise, OTT's lack of standards frustrates production companies.
People who work in post-production roles are often the last set of eyes to see a commercial or show before it is sent to a network or streaming service. Then the media distributor will work with the post-production company on edits before it runs. With OTT, the same piece of work is often sent to multiple distributors, each with its own requirements for specs like the size of a pixel or audio level.
Trade organizations like the Association of Independent Commercial Producers (AICP), the Interactive Advertising Bureau and Ad-ID are working to create standards for production companies. The goal is to create a digital version of a "mezzanine" file, which serves as a master file format for all television content.
Danny Rosenbloom, vp of post production and digital affairs at the AICP, called during the IAB event for industry-wide production standards. AICP represents post-production companies like MediaMonks, Bob Industries and Epoch Media Group.
"Often in the process of delivering work, our members will receive two or three different audio files, one based on on one standard, one based on another, and the reliance is on the people on the receiving end of those files to figure out which one goes with which," he said. "That's a recipe for disaster - if someone puts a web [audio] mix on a spot for broadcast, it's going to be too high."