CTV advertising is gaining popularity among marketers. However, some are still on the fence as they have several questions, especially related to CPM. Here, Jason Fairchild, CEO, tvScientific, answers some of those questions and explains why performance buyers should consider it.
Jason Fairchild CEO , TvScientific
July 14, 2022
Over the past few years, search and social performance marketers have begun testing a new channel: CTV advertising. This exciting new medium is gaining momentum quickly, and it seems only a matter of time before millions of performance buyers catch on.
But for those yet to test CTV advertising, many vital questions remain. Is CTV advertising effective in targeting down-funnel performance metrics? What value does programmatic tech bring to TV advertising? Won’t the rise of programmatic in this space destroy CPM rates? And what will the TV advertising landscape look like as this transition plays out?
This article will tackle all those questions, explaining how the players who lean into this shift now stand to gain the most over the coming years.
Why CTV Advertising Is the Next Performance Channel
What makes CTV advertising special and why the rapid adoption we’re seeing makes sense is that it marries the massive power of TV with the measurability of digital marketing. Based on our data across campaigns that have generated millions of outcomes, TV outperforms search in terms of potential scale and cost per outcome, where the outcome is a website visit, a sale, ROAS, or cost per app install.
While this data may seem surprising, it makes complete sense if you compare the CTV advertising experiences to digital. CTV ads render on 60-inch+ TVs with surround sound. The environment is uncluttered. Users are in the lean-back mode, and over 70% of them have a smartphone in hand. Is it any wonder that ads delivered like this outperform those shown on two inches of screen space surrounded by social media content designed to distract?
Every advertiser has always known that TV is powerful. They just didn’t have a means of accurate measurement. Now CTV advertising reveals exactly how powerful the medium is with concrete data.
How Programmatic CTV Delivers for Performance Buyers
What performance buyers care about, first and foremost, is driving measurable outcomes among the precise audiences they care about. It’s something that traditional TV advertising has never been able to provide.
For most of the history of advertising, TV has been measured via metrics provided by third-party panel-based measurement systems that consider reach and frequency against a target audience profile. Advertisers pay a CPM for broad reach and frequency, but really it’s like marketing to 60,000 football fans trying to reach the 5,000 people in the stadium that match their target audience criteria. This model is massively wasteful.
Programmatic CTV advertising completely upends this paradigm in two key ways. First, programmatic CTV buying allows marketers to target at a user level rather than buying entire programs, eliminating the “spray and pray” method of traditional TV advertising. Second, programmatic advertising in CTV enables outcome-based ad buying, just like in paid search.
The addition of these features to TV advertising will create massive demand for the channel among the 9 million search and social advertisers who have yet to try CTV. Combined, these advertisers account for $170 billion in annual ad spend and are always ready to invest in channels that work.
Programmatic CTV Is a ‘Race to the Top’ for CPMs
There is a widespread notion among publishers that programmatic and performance buyers create a “race to the bottom” for CPMs. But the truth is precisely the opposite: programmatic drives up CPM rates. To understand why let’s explore the fundamental capability unlocked by programmatic advertising.
Imagine you wanted to market a product to people wearing red shirts, and you have the opportunity to reach a football stadium audience of 60,000 people. If you used traditional methods, your message would be displayed to all 60,000 fans to ensure the 10,000 red-shirt wearers you wanted to reach would see it. What programmatic does, essentially, is give you the option to target only the audience you care about: the 10,000 sporting shades of rose, crimson, brick, and cherry.
This route is preferable to advertisers because of its efficiency, enabling them only to spend where it counts. As a result, advertisers are willing to pay more, which is why programmatic and performance buying don’t destroy CPMs.
And the history of search targeting bears this out. The introduction of granular targeting to the paid search business did not destroy CPM rates as many feared. Instead, it injected them with rocket fuel. In the early days of paid search advertising, before paid click marketplaces, advertisers would pay $35 CPM for banner ads. Today, fueled by massive competition and effective advertiser ROI, that number is closer to $300. And there is every reason to believe that the story will be the same in the CTV advertising space.
What the Future of TV Advertising Looks Like
The entry of the 9 million social and search advertisers into programmatic CTV will radically change TV advertising forever and significantly drive up CTV CPMs. Let’s take a look at how that shift could play out.
While programmatic CTV would be attractive to the lion’s share of those 9 million advertisers, let us restrict the total addressable market (TAM) to the top 5%, currently driving ~$75 billion in digital programmatic ad spend. Of the 450,000, around 500 started testing programmatic CTV in 2021. In 2022, it’s realistic to assume that awareness of the channel’s efficacy will push that number into the thousands. By 2023, it will be in the tens of thousands. By 2024, a thriving CTV marketplace of over 30,000 advertisers will drown out the 500 legacy linear advertisers representing 80% of linear TV’s $72B ad revenue.
The history of CPC pricing in paid search and social provides a helpful model for what this will mean for CPMs. When the first paid search marketplace GoTo.com launched, it sold clicks for $0.01. Within a couple of years, the average had jumped to $0.60 per click. Now the same clicks go for $2.50 on average, with many keywords selling for over $20 a click. An identical pricing pattern later played out in social advertising.
If programmatic CTV performs on par with search or social, over 30,000 thousand advertisers could quickly drive CTV CPMs to quadruple their current rate, pushing them to well over $100. As shocking as this math is, it is fairly conservative. It assumes that only 30,000 of a total pool of 9 million will move to the channel by the end of 2023. In truth, that transition will likely happen much more quickly. Once ROAS is demonstrated to performance advertisers, they’re quick to take advantage, and word spreads incredibly fast.
The first-mover advantage
Programmatic tech is transforming TV advertising. TV, already the most compelling ad medium, now has all the attributes that made digital channels valuable to advertisers. And this means CTV advertising is at the beginning of a gold rush.
As is the case in many endeavors, the players who adopt this channel early will test, learn, and optimize their strategies before their competition has even entered the race. The first-mover advantage has tremendous power, but the window of opportunity will not remain open long.