Part 2: CTV deep dive
The next chapter in AdLingo's CTV deep dive series with focus on ecosystem platers, M&A, measurement FUBAR, and things to watch.
Last week's newsletter was Part 1 of the CTV deep dive series. If you missed it, you can go back to the archives and check it out here.
In Part 2, we turn our attention to:
Mergers & acquisitions
Plus, what to keep an eye on
Did you sense a Lumascape diagram coming? Your spidey sense was correct.
Grab yourself a PDF copy of the Convergent TV Lumascape here.
Yeah, that is a heck of a lot of logos. Like all things digital, when there's an opportunity in an untested-nonstandardized-media space, the tech startups pop up like weeds through concrete. CTV is no exception.
Let's simplify this a bit and focus on the core functions. Most of the mechanics of a CTV transaction are just like any other digital activation. The ad dollars flow from the advertiser, through an agency, into a DSP, over to the SSP/Exchange, and then into the publisher’s inventory.
In this case, the “publisher” is the AVOD streaming service or platform like Hulu, Peacock, CBS All Access, etc. Note: check out the CTV acronym decoder ring in Part 1 if you are having trouble following.
If you have executed programmatic display in the past, then all of this (other than the prices $$$$) should look very familiar.
However, the transaction is actually a lot more complex, especially on the sell side of the diagram. That’s because the ad insertion point varies.
The publisher, the AVOD service, the streaming platform, and the actual television itself can insert ads into the AVOD experience. And guess what…they all want to be paid.
Even though the baseline transaction seems straightforward, the insertion point for the ad (and therefore the point-of-ad-sale) varies. Here is a more accurate diagram:
In Figure 2 above, we can see that the insertion point of the ad is not as simple as a regular display transaction. The streaming device, television set, and publisher itself have the ability to insert ads. Where you choose to buy will impact the price you pay, driven by the availability and transparency of that inventory.
What you need to know
Historically, the currency of television carriage rights was a combination of cash and inventory. For example, your local cable television provider has to purchase the right to carry CBS television from the local CBS affiliate. Typically, these deals involve some cash and some rights to inventory exchanging hands.
The local cable provider cuts a check for the rights, and in exchange, the cable company can carry the programming and gets the rights to sell a few spots (aka ads) in certain programs.
The same is even more true for cable networks. The further you go down the channel popularity ladder, the more inventory is made available for negotiation.
Fast forward to the modern AVOD service. Platforms like Roku don’t just make money selling you an affordable device. They also make money from the content owners on their devices.
Question: Ever stop and wonder why certain streaming services are “featured” on these devices and others are not? Ever wonder how Sling, Disney+, Hulu, and Netflix ended up on the list of recommended apps and with physical buttons on the remote?
Answer: It is all monetized. $1 per customer, according to a 2019 Bloomberg piece. That translates into millions, per button.
The branded remote control buttons and million-dollar homepage takeovers are amazing, but the real prize is the AVOD inventory.
Streaming platforms gain access to inventory inside of the AVOD apps through a number of deal structures. In some cases, newer streaming apps (the longtail) simply do not have the ad sales team to solicit advertisers. For them, the platforms themselves act as an ad network.
The streaming platforms have all sorts of incentives and leverage points they can utilize to get access to premium inventory. Just like the old-school network carriage deals, the streaming platforms can use a combination of cash + extras to secure inventory to take to market at a marked-up price.
In the last 5 years, the television manufacturers have caught up to the pack. Companies like Samsung, Vizio, and LG finally realized that they can offer the same type of experience as Roku, Apple TV, and Amazon.
However, the OEM’s have one strategic advantage. They control the glass.
The TV set itself is the last link in the chain before the content hits your eyeballs. That’s a strategically important place to be! Since they own the actual hardware and operating system in the device, they can provide a more integrated user experience.
They can also unlock an unprecedented amount of programming consumption data. The TV set is the last link in the programming chain. It sees every frame of video that hits the glass. Using ACR technology, the set manufacturers can measure everything that is watched on the device, regardless of how the programming arrived on the device (OTT, cable, OTA, etc.).
Companies like Vizio have 16 million+ data collection-enabled televisions in the market. They’ve also built a streaming operating system into their sets, called Smartcast.
You can buy premium quality AVOD inventory from:
Streaming publishers and content owners
Streaming device manufacturers
Television set manufacturers
And you can access the inventory:
Directly with each of the sources above by cutting traditional, insertion order based deals.
Programmatically through a number of DSPs and SSPs.
Which access path is best? It is simply too early to tell. If history teaches us anything, we know the CTV market will be dominated by programmatic in the not-so-distant future. Frankly, it already is.
However, traditional IO-based buys are still quite common. Television upfront and scatter buys utilize digital delivery to hit their delivery targets. CTV consumption is accepted as part of a program’s total rating. Consequently, CTV is packaged into most linear buys, either directly or as part of a makegood.
In either case, CTV inventory is expensive. Too expensive in many cases. However, so was every other digital channel before it fully matured.
The addressability provided by CTV is simply not appropriate for all advertisers. It is for many…not all.
If your reach target is adults 25-54 with some light qualitative overlays, traditional linear buys are probably going to remain the most efficient for you, at least for the time being. On the other hand, if you are looking to reach just 20% of the market because you have a very specific target in mind, the addressability afforded by CTV might be exactly what you need.
Mergers and acquisitions
Look back at Figure 1 and 2. Turn your attention to the SSP box. The SSP sector has consolidated significantly in the last year. Most notably, Magnite has been on a merger and acquisition tear.
Last year, Rubicon and Telaria merged to form a new company called Magnite. This was the crack of thunder in the CTV space. Rubicon was (still is) a widely known SSP for display and video publishers without a ton of traction in the CTV space. In contrast, Telaria was focused almost exclusively on video and CTV. Combined, they became quite the powerhouse.
Then, just a couple of weeks ago, Magnite announced a $1.7 billion acquisition of arguably their biggest competitor in the video space, SpotX.
The purchase price consists of $560 million in cash and 14 million shares of Magnite stock. SpotX's net revenue for 2020 was $116 million, $67 million of which was CTV-related.
The $67 million in SpotX platform revenue is the key bit to follow. That’s 58% of the total revenue, and you know it must be growing double digits each quarter. Keep in mind, these numbers are not media figures. This revenue is derived from the fees collected for facilitating the automated sale of inventory. In other words, this is platform revenue generated by taking a small percentage (the take) fee out of a $50/CPM+ transaction.
Why is this important?
This move positions Magnite to become the dominant AVOD inventory supplier in the marketplace. Today, they compete with some major ecosystem heavyweights such as Comcast, Verizon, Google, and others.
If successful, Magnite will be the dominant independent platform aggregating CTV supply for the market.
Once again, head back up to Figure 1 above. The only one not directly measuring CTV ads is the brand itself. The agency, DSP, SSP, Publisher, Device, and Television are all measuring CTV ads. So what’s the problem?
None of it matches
None of it captures everything
None of it is a currency
Very little of it is accredited
A lot of it is opaque
Little of it is shareable
In other words, it is “same old - same old” for digital media.
Every touchpoint in the CTV transaction has some ability to measure campaign performance. For some, it is as simple as delivery and device-level frequency. For others, there is some overlay of demographics. At this stage, none of them are likely to have the exact measurement capabilities you are looking for, but that’s ok.
By the way, I did not even touch on the world of third-party measurement via Nielsen, Comscore, and the other legacy research houses. There is a mixed bag of brand lift, on-target reach, and attitudinal research companies that all claim to have CTV penetration.
Will it get better? Suuuuure it will. Just look how consolidated, standardized, and discrepancy-free the rest of digital has become.
Do not let the lack of measurement standardization be an excuse to delay your investment. Now is the time to act. Experiment with test budgets and figure out what works for your brand before the competition moves in and gets ahead of the market. The barriers and cost of entry are extremely low despite inflated CPM’s.
Keep an eye out
Consolidation: Do keep an eye out for continued platform consolidation. No one wants to work with the 14th best streaming app, or the 27th best DSP for streaming. Expect to see more acquisitions, especially those with the ability to measure campaigns at the household level.
Rate Increase: If you are holding out for a CPM decrease, do not hold your breath at this point. Sure, eventually they will fall…years from now. At the moment, available AVOD inventory is extremely difficult to find. Decreased viewership in linear programming has forced campaigns to make up losses via CTV. Consequently, less and less inventory is available to buy in the open market or programmatically.
Measurement…you can do better: It is time to branch out a bit. If you find yourself being satisfied with simple “reach” numbers in broad demographics, you are doing your campaigns a disservice. Go back and take a look at that Lumascape. There are a ton of interesting vendors that can help enhance your measurement and targeting capability. It has never been easier to test and learn than it is right now.
To be continued…
Next week, we will tackle a new digital marketing topic. However, the CTV deep dive series will return later this summer.
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