What Is Connected TV (CTV) & OTT Advertising and How Does It Work? [infographic]

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What Is Connected TV (CTV) & OTT Advertising and How Does It Work? [infographic]

Published on March 16, 2021, Updated on September 7, 2021 by ,

The rise of Internet-enabled TVs and streaming services has created new opportunities for publishers, advertisers, and AdTech companies. 

Connected TV (CTV) and over-the-top (OTT) advertising is a hot topic in the programmatic advertising and AdTech industry at the moment, but there are many differences between how CTV and OTT advertising works compared to web and mobile advertising. The industry also faces a new set of challenges that need to be dealt with to spur on growth, investment, and ad spend.

We’ve created this guide to help you learn more about CTV and OTT advertising.

What Is Connected TV (CTV)?

Connected TV (CTV) refers to devices that connect to the Internet and allow viewers to watch video content from over-the-top streaming services. Examples of CTV devices include smart TVs, but the term CTV doesn’t only apply to televisions, it also includes devices that can plug into a TV to display video content, such as game consoles and streaming devices. 

It’s important to note that while many people use desktops, laptops, and mobile devices like smartphones and tablets to view video content on the Internet, the IAB doesn’t consider those devices as examples of connected TV. 

What Is Over-The-Top (OTT)?

The term over-the-top (OTT) in the context of TV refers to showing video content via the Internet. Popular streaming services like Netflix, Hulu, Roku, Amazon Prime, and HBO Go are examples of OTT video services. The reason it’s called over-the-top is because these services are served over the Internet, rather than via traditional broadcast networks (also known as multiple-system operators (MSOs)) to serve the content to viewers.   

What’s the Difference Between CTV and OTT?

Although these two terms are often used interchangeably, there is a difference between them.

The IAB Tech Lab wrote a blog post outlining the differences between CTV and OTT.

Here’s an overview of the differences:

Connected TV refers to the devices used to view video content. However, it only includes smart TVs, streaming devices, and game consoles; it doesn’t include desktops, laptops, smartphones, or tablets.

OTT refers to the video content offered by streaming services. These streaming services can be accessed via CTV devices, as well as desktops, laptops, smartphones, or tablets.

How Does CTV and OTT Advertising Work?

Unlike the web and in-app mobile worlds where open RTB auctions are one of the main ways to transact digital ads, most ads in the CTV and OTT world are bought and sold via direct deals and private marketplace (PMP) deals. 

One of the main reasons for this is the limited supply of CTV and OTT inventory. Also, the inventory is considered much more premium than inventory found in the open web. For that reason, OTT streaming services prefer to establish direct relationships with their advertising partners, rather than offer up their inventory on an open market. 

When it comes to ad serving in CTV and OTT environments, there are two main methods: client-side ad insertion (CSAI) and server-side ad insertion (SSAI).

Client-side ad insertion: This ad-serving process either preloads the ads into the video player of OTT device or sends out an ad request to a third-party ad server from the video player. Because of this, it can cause interruptions between the video content and ads, resulting in a poor user experience. Also, it is susceptible to ad blockers. While many streaming services use CCAI, it is considered the legacy method and is slowly being replaced by server-side ad insertion. 

Server-side ad insertion: With this method, the ad slots are stitched into the video content. When it’s time for an ad to be displayed, the video player notifies the SSAI vendor, which then sends an ad request to the various AdTech platforms. Once an ad is ready selected, it is stitched into the video content and served to the viewer. 

The main benefit of SSAI is that it provides a more seamless user experience as there are fewer, if any, interruptions between the video content and ads, like is sometimes the case with CSAI. 

Read more about SSAI here: Server-Side Ad Insertion (SSAI): All of Your Questions Answered – SpotX

The CTV and OTT Landscape

Popular OTT streaming services include:

  • Netflix
  • HBO (Go, Now, and Max)
  • Hulu
  • Disney+
  • Amazon Prime Video
  • Zee5
  • AppleTV+

CTV devices:

  • Smart TVs
  • Game consoles, e.g. PS4 and Xbox
  • Streaming devices, e.g. Roku device, Amazon Fire, and AppleTV.

One of the biggest impacts on linear television growth in 2020 was definitely the COVID-19 crisis. The move from traditional TV to CTV/OTT was inevitable, but the COVID made the change happen faster. 

In 2020, over 6 million U.S households cut their cord with broadcast TV, which pushed the total number of cord-cutters to 31.2 million. It is expected that this trend will accelerate and the number of cord cutters will grow to 55 million in the United Stated by 2022. 

OTT is on the rise with more viewers turning to streaming services, and for consumers, there’s a plethora of streaming services on offer.

Apart from the established services like Netflix and Hulu, a number of new players have entered the market. Last year alone three new OTT platforms were launched; Apple TV plus, Disney+, and HBO Max. According to LemonLight, the total number of OTT providers in the U.S amounts to 300 and as of June 2020, 68 million US homes use OTT services. 

The top five OTT services by the number of subscribers are: 

  1. Netflix
  2. Disney+
  3. Hulu
  4. HBO Max
  5. Amazon Prime

OTT services are definitely not a niche market anymore, as people of all ages consume video content today:

  • 52% of all US adults over 18 use at least one OTT service.
  • The average OTT user streams more than 2 hours of content everyday.
  • The average OTT user streams content across three devices and uses three different OTT services. 

Source: OpenX 2019 Consumer OTT Report

Growing Device Manufacturers Market

As reported by SpotX, there has been a huge increase of 800% in smart TV inventory from March to October 2020. Currently, smart TVs account for 38% of all internet-connected TV spend on its platform. 

The report also states that the original equipment manufacturers (i.e. smart TV manufacturers) may generate more profit from their data and digital advertising than from physical device sales. 

It is estimated that 60% of consumers will have smart TVs by 2024 to be able to access their streaming apps directly through TV rather than streaming sticks or boxes and have the opportunity to share greater user experience.

Data to Play a Bigger Role in Ctv and OTT

Data will play a key role in optimizing reach, performance, and measurement in CTV and OTT environments as it has in web and in-app advertising.

Although pretty much all OTT service providers are sitting on a treasure trove of first-party data, there’s a lot of fragmentation in the industry that is preventing this data from being fully utilized. The adoption of a standardized ID will certainly help alleviate that. 

As first-party data and contextual targeting are on the rise, media owners work with data management platforms to increase their inventory value and leverage machine learning to analyze video content across different services to boost the growth of contextual campaigns.

More Platforms and Partnerships

As the CTV and OTT industries grow, we can expect to see both new and existing companies enter the market with their own offerings. Many large AdTech companies like The Trade Desk, Magnite, SpotX, and Adform already have CTV/OTT offerings, and we can expect to see other companies follow. There are also many opportunities for new companies to enter the market and provide solutions to various challenges. 

We can also expect to see more partnerships between brands, media owners, and AdTech companies.

CTV and OTT Ad Spend

According to eMarketer, the total US OTT/CTV ad spend in 2020 amounted to approximately $8 billion but it is expected to increase this year to $11.36 billion. 

Forecasts indicate that OTT/CTV ad spend in 2020 is going to double and reach $18.29 by 2024, with half of all of the ad revenue going to YouTube, Hulu, and Roku collectively.

The most popular categories advertisers were allocating their budgets before the pandemic were automotive, Business, Food & Drink, Retail, Health & Fitness, and  Finance. 

The current trends in 2020-2021 include Arts & Entertainment, Health & Fitness, Hobbies & Interest, Education, and Finance. 

The Challenges Facing CTV and OTT Advertising

Fragmentation

This growth of CTV and OTT has brought with it many opportunities, but has also led to a challenge that the programmatic advertising industry knows only too well; fragmentation.

Unlike the fragmentation of tech platforms and devices that we’re used to seeing, the fragmentation issue in CTV and OTT runs much deeper. 

For starters, each CTV device has its own hardware and software, meaning they all have their own IDs (some don’t have any!). This makes it hard to create any kind of unified identifier across all of the different CTV devices. 

The fact that a consumer might use multiple devices to watch video content across different OTT services only exacerbates the problem. For advertisers, it is quite hard to reach their target audience at scale within the CTV and OTT environments. 

The fragmentation challenge in CTV and OTT impacts many other areas of digital advertising, such as the ones listed below. 

Identity

As mentioned above, the fragmentation of devices and apps is causing a lot of issues around identity. 

Compare this to advertising in web browsers. If an advertiser wanted to reach their target audience, then the only real challenge would be identifying them across different browsers (ignoring for a moment the various privacy challenges around identity in web browsers). 

Although there are many web browsers available, most people use Google Chrome and don’t tend to switch between web browsers. 

In the CTV and OTT environments, there are multiple CTV devices and multiple OTT apps, meaning identifying audiences across all of those devices and apps is a huge challenge.

To help alleviate these identity challenges, the IAB Tech Lab has released a set of guidelines to help companies operating in the CTV and OTT industry use and pass the correct ID from the various devices to OTT apps and AdTech platforms.   

As a minimum, there are three fields that should be passed from the CTV device to the app:

IFA (ifa): the actual ID
IFA type (ifa_type): the type of ID (e.g. Apple’s IDFA or Google’s AAID)
Limited ad tracking (lat): used to state whether the user has opted out of ad tracking and measurement as represented by a value of either 0 (the user hasn’t opted out) or 1 (the user has opted out).

Here’s an example of what they would look like:

CTV device IFA IFA type Limited ad tracking
iOS/tvOS ifa=0015478542488 ifa_type=idfa lat=1
Google Android ifa=5487758656 ifa_type=aaid lat=0
Roku box ifa=4147875211 ifa_type=rida lat=0

The guidelines also allow for publisher, AdTech platform (e.g. SSP), and session IDs to be passed. 

The broader challenge with identity is getting all of the CTV devices and OTT services to adopt one identification method (e.g. the IAB’s IFA). 

Measurement

The key to accurate measurement and attribution in digital advertising is identity. And as you saw above, there are many challenges around identity. In the short term, this means measuring the performance of CTV and OTT campaigns and attributing ad views to conversions will be limited at best. 

When it comes to viewability and measurement, there are a few key challenges that need to be addressed:

  • Identifiers: The lack of a consistent identifier across all the different CTV devices means that identification is fragmented and limited.
  • Access to devices: Most CTV devices are closed off, meaning third-party verification tools have restricted access. 
  • Server-side ad insertion: Server-side ad insertion is a common way to serve ads inside CTV and OTT environments, but it presents many challenges (listed in the next section). Because of the way SSAI is set up, it is harder to identify invalid traffic (IVT) and collect measurement data.  

Although there are few companies that provide viewability and measurement capabilities in the CTV and OTT environments, such as Nielsen’s Total Ad Ratings product, Pixalate’s invalid traffic detection feature, Moat’s Sophisticated Invalid Traffic (SIVT) detection metric, there’s a strong need for standardization.

To help address these key challenges, the IAB has been working on refining some of its existing standards, specifically, VAST and OM.

The video ad serving template (VAST) is an IAB standard that is used in video advertising in both web browser and in-app mobile environments. Although VAST is responsible for video ad serving, it doesn’t handle the measurement side of video advertising. For that, there’s video Video Player Ad Interface Definition (VPAID)

However, VPAID will soon be depreciated and the measurement function of VPAID will be replaced with the open measurement (OM) standard. 

The goal of OM is to not only power measurement for video advertising in web browser and in-app mobile environments, but also in CTV and OTT environments.

The IAB is continually working on both VAST and OM to help standardize the ad serving and measurement processes within the CTV and OTT environments.

Ad Serving

Server-side ad insertion is becoming the main way to serve ads in CTV and OTT environments. Although SSAI is an improvement on CSAI, it does have a couple of drawbacks. 

Firstly, it’s vulnerable to ad fraud as it’s not easy to identify if the ad requests are coming from an actual AdTech platform or whether there’s a fraudster on the other end. Because of this, it is also hard for invalid traffic detection tools to tell the difference between genuine and fake traffic.

Secondly, it’s harder to incorporate IAB standards, such as VPAID and older VAST versions, into SSAI. 

But as mentioned above, the IAB Tech Lab is working on updating the existing video ad-serving standards VAST and OM to support ad serving and measurement. 

Ad Fraud

Ad fraud has been a constant challenge in programmatic advertising for the best part of a decade, with fraudsters following the money; from display to mobile, and now, to CTV and OTT.

Just like with other channels, fraudsters have been looking for the vulnerabilities and opacity to carry out and conceal their fraudulent activities. 

Here are some of the main CTV and OTT ad fraud schemes that have been detected so far:

ParrotTerra: DoubleVerify uncovered an ad fraud scheme it calls ParrotTerra. Fraudsters tricked advertisers into buying inventory that would never be seen by real people. They did this by using SSAI and generating fake CTV inventory across apps, IP addresses, and devices. DoubleVerify stated that the scheme could have cost advertisers and publishers between $30 million to $50 million in ad spend. 

StreamScam: Another very similar (if not identical) ad fraud scheme was detected by Oracle Moat. The scheme called StreamScam tricked advertisers into buying fake inventory from spoofed apps, devices, and IP addresses. Just like with ParrotTerra, the scheme was carried out via SSAI. Oracle Moat said that fraudsters had cost advertisers and publishers $14.5 million in ad spend.  

LeoTerra: This ad fraud scheme was the first iteration of StreamScam, which was detected by DoubleVerify in July 2020. It was then detected by Oracle Moat in December 2020 and referred to as StreamScam.

Colorius: DoubleVerify discovered this ad fraud scheme in 2018. Just like the other ones, this scheme used over 400 fake SSAI servers to generate fake impressions.

ICEBUCKET: White Ops uncovered this ad fraud scheme in 2020. Fraudsters used 1,700 SSAI server IP addresses to generate fake traffic.    

DiCaprio: This ad fraud scheme detected by Pixalate differs from the ones listed above. Instead of exploiting the vulnerabilities in SSAI, this scheme, labelled DiCaprio, used the popular app Grindr to carry out the scheme. 

Basically, fraudsters exploited loopholes in the Grindr app to send out ad requests for CTV and OTT ads. 

The ad requests appeared to come from Roku apps on Roku devices. Advertisers would bid on these ad requests believing their ads would be shown to Roku users, when in fact they would run in the background inside the Grindr app.

Monarch: Another scheme reported by Pixalate, called Monarch, used a spoofing technique to make it appear that ads would be displayed on premium Roku apps, when actually they would end up on non-premium apps like screensavers. 

The fact that the CTV and OTT industry is still fairly new, it’s not really surprising that we’ve seen so many ad fraud schemes already. 

As the industry matures, we’ll likely see more IAB standards like app-ads.txt be adopted, which will help address and hopefully eradicate some of the ad fraud schemes listed above. 

But as we’ve seen in other digital advertising channels, ad fraud is a constant theme that is difficult to eliminate completely.   

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