April 29, 2019

Cord Cutting Swells, But Ad Dollars for Online TV Slow to Follow

By Jay Bemis | Advertising Systems Inc.

The number of Americans “cutting the cord” — that is, abandoning cable TV and opting for over-the-top (OTT), online services instead — continues to rise at a steady clip.

Research firm eMarketer estimated last week that the number of U.S. households cutting the cord this year will climb 17.8%, to 18.4 million overall. And, in a March survey of 500-plus cord cutters, conducted by The Harris Poll and programmatic platform OpenX, more than half of the poll’s respondents, or 52%, said they didn’t miss anything about cable television.

Such numbers would seemingly point toward a rosy future for OTT services. However, there are other factors in the cord-cutting frenzy that have resulted in advertisers and marketers taking a wait-and-see approach, for now, when it comes to OTT ad spend.

Those factors include:

• Sheer Numbers Remain Heavily in Cable’s Favor

Though the number of cord-cutting households will rise to 18.4 million, the cable industry still clings to a much larger audience, with an estimated 88 million households. As for ad spend, a recent Winterberry Group study estimated that OTT streaming video will garner $2.6 billion in ad spend in 2019, which is a healthy increase of 20%.

Yet, that $2.6 billion seems paltry in comparison to the $69.2 billion ad spend that Winterberry estimates for “linear TV” in 2019.

Also firmly in cable TV’s corner: It is the top provider of broadband internet connections. Revenue for consumer broadband service rose 7% last year to $61.6 billion, Convergence Research said recently when releasing its annual “Couch Potato” report.

• Increasing Competition in the OTT Space

Also growing is the number of streaming services that are entering the OTT fray.

Both Disney and Apple plan to unveil cheaper, Netflix-like streaming services later this year. They’ll go head-to-head with such currently popular services as Netflix, Hulu With Live TV, YouTube TV and ATT’s DirecTV Now — all of which, by the way, have increased their rates by $10 to $15 monthly over the past few months, which has dipped into cord cutters’ cost savings.

As more companies enter the OTT market, Convergence said in the “Couch Potato” report: “We believe a number of OTT plays, including large and niche, will fail due to insufficient subscriber traction, cost, and competition.” 

• OTT’s Ad Measurement Woes

Advertisers and marketers have found that gauging OTT ads can be difficult.

Because each OTT media channel contains its own set of metrics, and users consume OTT content across multiple devices and platforms, forming an OTT campaign “requires digital savvy and patience,” eMarketer says.

“This differs from TV, where advertisers use Nielsen ratings across large upfront inventory purchases.”

As one media executive told eMarketer: “Traditional TV measurement gives advertisers and their agencies a comprehensive view of households and audience composition across hundreds of linear TV channels.

“But OTT content is vastly more diverse than linear TV, and ad opportunities only exist where consumers stream content.”

Improving ad measurement, it appears, is perhaps the top challenge that marketers must tackle while they take their current, wait-and-see approach to OTT ad spend.

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