Believe it or not, TV went digital a long time ago. This is why so many U.S. homes have TV set-top boxes and there exists a plethora of over-the-air broadcast sub-channels. It is also the reason The Nielsen Company had to change the basis of its TV-measurement system from tuner frequencies to network codes embedded in program content.
The digital TV that we are talking about today is a little different from those early days. Over-the-top (OTT) applications (apps) now allow TV content to be displayed via any smartphone, tablet, computer or internet-enabled smart TV or dumb TV attached to a streaming device like an Apple TV, Roku, Amazon Fire TV or Google Chromecast. It does not require a TV set-top box or a subscription to a traditional pay-TV service provider such as cable, satellite or telco.
According to comScore, 51 million homes7 in the U.S. have some non-traditional OTT capability. Unfortunately for advertisers, that does not mean that there are 51 million newly minted OTT homes that they can digitally send video ads to via the Internet. Amazon Video, Netflix, Hulu and YouTube – account for 80 percent9 of all OTT viewing time and more than half of that content is commercial free.
Amazon Video and Netflix have the largest reach but do not accept advertising. As a result, they are not an opportunity for advertisers. In fact, they draw viewers away from traditional ad-supported TV thereby reducing the total number of ad-supported TV impressions available for advertising.
Adding to the shift of TV viewing impressions away from ad-supported traditional TV are TV-network specific OTT SVOD services. Not all; but some of these are choosing ad-free subscription models; e.g., HBO Go, Showtime, Filmstruck and Boomerang. Bucking the commercial-free trend are CBS’ All Access and CBSN, both of which are ad-supported OTT products.9
Facebook and Apple are two new entrants to the TV game; the latter will shift more ad-supported viewing minutes from traditional TV to yet another ad-free OTT SVOD option. These companies are each planning to spend $1 billion dollars on original video content this year. While these investments sound like a lot, they are relatively small when compared to what Netflix and Amazon plan to spend, $6 and $4.5 billion11, respectively. Facebook intends to make the original content available on its video watch tab. The good news for advertisers is that Facebook is ad supported. Apple on the other hand, has a different ad-free business model in mind: it wants to use the original programming to gain share of music subscribers from Spotify.
The below chart from eMarketer shows the shift of time spent viewing from traditional TV to OTT SVOD and vMVPD offerings.
At this time, the best opportunities for advertising across the OTT SVOD space comes from Hulu’s lower priced ad-supported OTT SVOD service and from TV-network specific OTT SVOD products like the two CBS options mentioned above. We estimate the subscriber count for these to be somewhere below 18.6 million. This estimate is not very precise due to the fact that the actual number of ad-supported Hulu subscribers is not reported. We only know that most Hulu subscribers opt for the ad-free offering and that if we subtract Hulu’s vMVPD (Hulu with Live TV) subscribers from the total 17 million Hulu subscribers count it puts the Hulu OTT SVOD ad-supported subscriber count somewhere below 16.6 million. Add to that number 2 million subscribers for CBS All Access and we’re at the below 18.6 million subscriber estimate.
YouTube accounts for 18 percent9 of OTT time spent viewing, behind Netflix but ahead of Hulu and Amazon Video. It is predominately ad-supported; however, it began offering an ad-free version called YouTube Red. YouTube Red is not free; it costs $10 a month to subscribe. The good news for advertisers is that YouTube Red represents a small portion of YouTube’s considerable reach13. YouTube is an excellent advertising opportunity for brands that do not mind advertising in user-generated content. It is not a good option for companies that are hyper sensitive about where their ads are placed; although, it is beginning to offer more professionally produced original content that would be a good option for any company.
The vMVPD providers represent an excellent digital video advertising opportunity; although, the current scale is somewhat limited. All of the subscribers for all of the vMVPDs – DIRECTV Now, Sling TV, YouTube TV, Sony Playstation Vue, Hulu with Live TV and fuboTV – add up to about 4.5 million subscribers. If we make the assumption that there are one subscription per home, the vMVPD universe would comprise 3.8 percent of the 119.6 million TV homes in the U.S. (as reported by The Nielsen Company).
Based on our estimates, the current scale of the digital TV advertising opportunity excluding user-generated fare is some number below 23.1 million (sum of vMVPD, ad-supported Hulu and CBS All Access subscribers).
Digital TV Advertising Scale
Source: Cambridge Analytica analysis of public subscriber counts
This number will grow over time as more people cut the cord and opt for vMVPD subscriptions. Below are projected coverage estimates for vMVPDs based on current run rates.
vMVPD Coverage Projections 2015 - 2025
Source: Cambridge Analytica projections from public subscriber counts
As you can see above, total vMVPD coverage is projected to hit 35 million by 2025. This does not include new vMVPD services that have yet to launch or projections for OTT SVOD services. If Amazon Video decides to allow advertising between now and 2025, it alone could dramatically increase the reach of ad-supported OTT SVOD advertising. It is also difficult to predict how Facebook’s new TV content will impact the OTT SVOD space: Whether or not viewers will go to Facebook to watch original TV shows? The answer to that question will likely depend on the quality of the programming, whether it is fully distributed on streaming devices and how well it is marketed.
This article was originally published on March 6, 2018 by Radio+Television Business Report.