What Is Connected TV?

May 2, 2024

TV has been turning into one tightly connected industry enhanced through the internet. The present understanding of television differs from what people experienced decades ago — a small black and white screen that displayed scheduled programs through traditional TV stations. Today, the world is experiencing the era of cutting-edge technologies implemented in every aspect of human life, including TV entertainment. Connected TV (CTV) represents a brand new approach to video content consumption, changing the way people are spending their time.

So what is CTV and why is it so popular today? CTV signifies “connected TV”, representing any TV set utilized to broadcast video content over the Internet. These are the most often videos streamed through downloaded services.

In a way, connected TV space is similar to an ecosystem of joint smart devices and video streaming channels interacting online. Video content, along with advertisements, is delivered to connected TV viewers via smart TV sets, gaming consoles (Xbox, PlayStation), online services (Hulu, Netflix, SlingTV), streaming boxes (Roku, Tivo, Apple TV, Amazon Fire TV), and even internet-capable DVD players, i.e., every medium connected to the internet. Such an experience allows people to choose a suitable connected TV alternative for a reasonable price on a subscription or without it.

Each generation differs in its approach to the connected TV. According to a Statista report, the number of CTV users in the US was 56.8 million among millennials in 2020, and it was estimated that it will hit 62.5 million by 2025. So the amount of connected TV users among young generations is constantly increasing, but it’s less popular among Gen X and baby boomer generations.

What Is CTV Advertising?

Also known as performance TV, connected TV has become an available and cost-effective advertising method. It comprises an embedded programmed algorithm that precisely addresses video content to potential target consumers. Connected TV allows marketers to develop an improved marketing strategy to make a good profit from a TV advertisement. According to a survey among global marketers, 81% of respondents stated that they would increase their spending on connected TV advertising in 2022.

Moreover, in the CTV space, advertisers can use a wide range of ad formats that would be appealing even to picky viewers, and in this way, they may reach a broader audience whether overseas or in the domestic area.

So when planning an ad campaign, one should consider the appropriate ad format for their connected TV advertising. Often it depends on the source chosen for delivering ads, but still, it’s possible to single out three main types:

In-stream video ads. These connected TV ads are typically 15-30 seconds long and are displayed before or during a TV program. They are programmed to appear at a precise time in the middle of certain content on the advertiser’s desired channel, and a viewer can’t skip them.
Pre-roll ads. These interactive ads allow the spectator to land on the promotional website by clicking on them. For instance, if a marketer advertises a movie and delivers it through streaming services, viewers, by clicking on an ad, will be taken to a web page where they can book or purchase a ticket to a movie.
Home Screen Placement ads (HSP). This type of connected TV ads are short videos or images with compelling CTA (“call to action”) phrases. Having performed the action described in the call, viewers may get more information on a product or service.

All of these formats can be utilized for creating compelling ad content that will encourage connected TV viewers to buy advertised products.

How Does It Work?

Connected TV advertising works closely with OTT streaming distributors and programmatic TV ad purchases. Its performance involves the joint work of algorithmic solutions and TV content delivery via traditional network distributors.

OTT (over-the-top) shouldn’t be confused with connected TV as they represent different things. OTT advertising refers to delivering video content over the internet that can be accessed from any internet-supported device or app. It involves such groups of OTT services as:

Advertising-based video on demand (AVOD). This group of OTT services entails free streaming. Examples of AVOD services are Tubi, Vudu, and Crackle.
Subscription video on demand (SVOD). This OTT streaming service is based on subscriptions of different prices. Usually, it doesn’t provide ads or run them on a free subscription model only. Amazon Prime, Hulu, and Netflix are examples of SVOD.
Multichannel video programming distributors (MVPDs). This group of distributors includes paid TV programming (YouTube TV, SlingTV, and AT&T NOW).

CTV and OTT marketing models work excellently together in the digital advertisement. According to this IAB UK report, the connected TV audience is growing fast thanks to OTT services. Furthermore, OTT channels allow marketers to enhance viewership and develop accurate targeting to promote a campaign.

Programmatic TV consists of a system of data-driven algorithms for purchasing a spot for an ad campaign in real-time. Typically, it uses a specific programmatic software adjusted for brands. Thus, advertisers can buy and sell connected TV ads in real-time bidding.

Built-in AI solutions help marketers divide an audience into subgroups, individualize ad content concerning interests, age, level of income, and other parameters, and deliver it to a particular household. So, people can view different commercials while watching the same TV show, which improves viewership rates and brand awareness.

CTV Ad Performance Measuring

The emergence of connected TV has changed people’s attitudes to watching TV at large. Thanks to modern portable gadgets, users can view any program they want to in any place at any time. At home, they can get the best experience of watching their favorite films on their TV. But if it is more convenient, they also can view the same video content via their portable devices.

Considering the expected increase in CTV ad spending to $25.5 billion by the end of 2025, TV advertising via internet-connected devices remains the fastest-growing segment in digital advertising. And it’s not only so in North America; CTV is also growing in the UK, Japan, Germany, and France.

Different metrics are applied in calculating the revenue of an ad campaign in the connected TV space. Each of these metrics carries an important meaning in estimating the marketing strategy. In measuring connected TV ad campaign performance, the following metrics should be considered:

Cost Per Mille (CPM; Cost Per Thousand Impressions). According to this metric, users do not have to click on an advertisement: it’s enough that the advertisement appears somewhere on a web page where the user could potentially see it. CPM allows marketers to calculate the number of single ad impressions delivered to a user.
Cost Per Completed View (CPCV). This is a rate between the ad campaign cost and the total number of completed ad views.
Video Completion Rate (VCR). This metric allows advertisers to determine the percentage of ad impressions fully watched by a consumer. In connected TV, the VCR is pretty high — between 92 and 97. Accordingly, it can lead to a lower CPCV (about $0.03) for distributors with high CPMs.
Reach. This is a number of households and individual consumers incorporated into an ad campaign. Keep in mind that a million impressions don’t mean that a million households or individuals viewed ads.
Frequency. This is an average number measured by dividing the total number of ad deliveries by the number of the chosen target audiences. For instance, if a marketer delivers 6000 ads to 2000 households (individuals), the frequency is 3.

Compared to video content performance, cost per click (CPC) is not substantial in measuring connected TV ad success. This metric is mostly applicable in calculating video content conversion via mobile devices. For CTV, the best option to check a campaign’s performance is CPCV.

Advantages of CTV Advertisement

Since consumers migrated to smart connected TV platforms to get a better consumer experience, television advertising has improved its development by leveraging the benefits of CTV inventories. When you include connected TV into your marketing planning, you can take advantage of the following:

precise targeting based on data fragmentation;
high ad quality;
the affordance of multiple ad formats;
real-time modifications in ad campaigns;
instruments to measure significant metrics which define campaign effectiveness;
the opportunity to gain more responsive audiences;
access to premium consumers.

No matter what you advertise, connected TV channels will enable you to find a matched audience with the help of a programmatic spot-buying system. Integrated automated processes will match end consumers with the right preferences for your product in order to deliver ad content to the right audience. Such interactive campaigns promote an increase in consumers’ VCR and CPCV.

Takeaways

Connected TV remains the fastest-growing segment in the TV industry in terms of advertising. It presents multiple opportunities to run successful ad campaigns and obtain a high ROI with the help of internet technologies embedded in every home and portable device. According to a Statista Research Department report, CTV ad spend is expected to grow up to $27.47 billion by the end of 2025.

Taking into account the strong points of connected TV advertising, one should provide an in-depth analysis of ad content, format, and targeting, create a marketing strategy, and identify the digital delivery route through well-known streaming services, smart TVs, or gaming consoles. Thus, success will be just around the corner.