CTV advertising - what it is
November 03, 20229 minute read

CTV advertising—what it is and how it works

People certainly aren’t watching TV like they used to. 

Statista reports that by the end of 2022, more than 39.3 million U.S. households will have cut the cord from traditional pay TV (that number is expected to reach 46.6 million households by 2024). 

And it’s no surprise so many people are cutting that cable cord — or never connecting it in the first place. Streaming services like Netflix, Hulu, Apple TV+, and Disney+ allow viewers to watch whatever they want, whenever they want, for less than the price of a traditional cable subscription. 

As a result, the world of TV advertising is also evolving, with CTV advertising on a major upswing.

  • What is connected TV advertising?

  • The evolution of TV advertising

  • 5 big benefits of CTV advertising

  • How CTV advertising works

  • CTV for local advertisers

What is connected TV advertising?

Connected TV (CTV) advertising refers to video ads that are delivered over the open internet on a streaming TV service and viewed on an actual TV set (either directly on a smart TV or via a connected device like a Roku stick).

On most streaming TV services, CTV represents over 80% of all viewing. The remainder happens on other devices connected to the internet (laptops, smartphones and tablets). 

While the terms OTT and CTV advertising are often used interchangeably, “OTT” technically refers to all viewing, while “CTV” only refers to viewing that takes place on a smart TV set.

Related content: CTV vs. OTT: Is There a Difference?

The evolution of TV advertising

Traditional, linear TV advertising allows advertisers to reach millions of viewers all at the same time. Unfortunately, this means a lot of waste — rather than just reaching their intended target, linear advertisers reach everyone watching a particular show. It also means less than optimal campaign measurement (did anyone go buy something after watching the ad?).

But now, viewer behavior has changed — cable and satellite TV use has dropped dramatically over the past decade. 

  • Only 56% of Americans say they watch TV via cable or satellite (down from 76% in 2015)

  • 71% of those who don’t use cable or satellite say it’s because they can access the content they want online

  • 61% report say they had a cable or satellite subscription in the past 

  • 39% say they have never been subscribers

As linear audiences decline, those wasted impressions and lack of measurable performance are becoming a bigger issue. Advertisers are following their viewers over to CTV — and adding CTV advertising to their mix at the expense of linear spend. As eMarketer reports:

“US linear TV ad spending will hit $68.35 billion this year and fall to $64.94 billion in 2026. Despite that decline, ad spending on linear and connected TV (CTV) combined will increase from $87.24 billion this year to more than $100 billion in 2026 due to the surge in CTV viewing.”

5 big benefits of CTV advertising

As advertisers follow their audiences over to CTV, they realize some big benefits when it comes to programmatic TV advertising — particularly around targeting, optimization and measurement.

1. Precise targeting

Targeting on linear TV is limited to finding shows that index best against Nielsens’ broad age and gender metrics (e.g., women 18-49, men 25-54).  

CTV advertisers can take advantage of digital targeting similar to Facebook and Google. That means audience segments can be based on everything from education level to income level to personal interests to consumer behaviors (or any combination of these factors).

Plus, brands can bring their own first-party data into the mix to reach current customers, people who have visited the brand’s website, and even members of the brand’s loyalty program.

Related content: The Top 5 OTT Targeting Options You Need to Know

2. Local targeting — beyond the zip code

Digital capabilities of CTV make it much easier to pinpoint consumers based on location via their IP address. 

This means ads can be hyper localized and served to viewers in a much smaller geographic region than on linear. It also means that messaging can be customized based on the viewer’s location. For instance, a car dealership with three locations can send the appropriate commercial to the viewers closest to each location.

3. High video completion rates

With superior targeting, CTV ads are far more likely to be relevant to the people viewing them — and why they are more likely to become engaged with the ads and to watch them to completion.

And advertisers can tell when they do.

Using ACR (automatic content recognition) technology from smart TVs, CTV providers are able to provide real-time, second-by-second data around completion rates, which can help advertisers to fine-tune the effectiveness of their marketing campaigns.

4. Detailed measurement and accurate attribution

CTV advertising also allows you to more accurately measure the effectiveness of your campaigns via conversions. 

Using website attribution, advertisers can see who came to the brand’s website and made a purchase after viewing an ad. With footfall attribution, you can see how many viewers visited a physical location and made a purchase.

Related Content: TV broadcaster debuts streaming advertising platform, achieves 600% revenue growth

5. In-flight optimization

Linear TV advertising is largely sold, trafficked and put into the feed well in advance of airing, which means limited options for making changes mid-campaign. But CTV ads can be inserted on the fly, and CTV advertisers have more flexibility to react to ongoing campaign performance to optimize outcomes.

For example, Madhive ingests and monitors real-time campaign data, to help advertisers allocate funds to the highest performing channels. This in-flight optimization ensures that every single dollar is being spent as efficiently as possible. 

Related content: 4 Benefits of OTT Advertising You Don’t Want to Miss

How CTV advertising works

Planning and executing CTV campaigns is straightforward with the right tools. The process looks like this:

  1. Choose a CTV platform 

  2. Choose a CTV ad type and produce the ad

  3. Define the target audience and execute

  4. Measure and optimize performance

1. Choose a CTV platform

When it comes to buying and selling CTV ads, there are plenty of platforms available that allow parties to buy and sell in a number of different ways. Some of the most popular options include:

  • Direct sales

  • Private marketplace (PMP)

  • Programmatic guaranteed (PG)

Advertisers can go direct to a streaming service provider like Hulu, which has a self -serve platform that allows advertisers to purchase inventory across its platform. The advantage of these platforms is that the brand knows exactly which shows — often high profile originals — their ads are running against. 

The downside of buying direct is that advertisers are limited to the streaming provider’s owned properties (e.g. only Hulu).

If you want to offer a wider breadth of options and inventory across a variety of streaming properties, a CTV ad platform like Madhive allows advertisers and content providers to connect via private marketplaces, or within the larger programmatic ecosystem. 

2. Choose a CTV ad type and produce the ad

The most common video ad types are 15 and 30-second spots — but there are also quick-hitting 6-second spots that Fox introduced for TV a few years back. In addition to choosing the length of your CTV ad, consider incorporating interactive, direct-response tools that link the creative back to the viewer’s mobile device — like a QR code. 

Check out how Hyper-local CTV campaign generates serious holiday sales for CBD skincare brand used a QR code in their CTV campaign to drive 3.4X sales in key DMAs.

3. Define the target audience and execute

With digital targeting technology, brands can reach highly-targeted audiences based on their own first-party data—members of their loyalty programs, for instance—by sharing that data with the publisher. 

No first-party data? No problem — you can also buy third-party data from companies like LiveRamp that collect data stripped of PII (personally identifiable information) and create audience segments from it.

After producing an advertisement and defining the target audience, the advertiser executes their CTV ad through their chosen platform.

4. Measure and optimize performance

While TV has traditionally been a top-of-funnel tool, connected TV has helped the medium graduate beyond lift metrics like brand awareness, perceptions, familiarity, favorability, and purchase intent. 

Advertisers can still get impression-based measurement against these “awareness” KPIs — but now you can also get insight into bottom-of-the-funnel metrics, like: 

  • Location attribution 

  • Site attribution and conversion 

  • Online and offline sales lifts

  • Foot traffic 

There are tools for real-time optimization — advertisers can reallocate budget throughout a campaign to make sure every ad dollar is going to the highest performing channels. 

CTV for local advertisers

In the early days of CTV, limited inventory and high CPMs meant that CTV advertising was the province of big brands with big production budgets.

But as CTV has expanded, so has the type of advertiser. 

Thanks to technology from companies like Madhive that make it easier to buy, sell and target local audiences, local advertisers are now spending more of their budgets on CTV, as well.

Madhive solutions make CTV advertising accessible to local advertisers who can target specific consumers within their local market via CTV — while reaching those viewers they are missing on linear TV. Those viewers may be cord cutters or heavy streaming viewers, but they are younger, more educated and more affluent. By reaching these audiences on CTV, local advertisers can make sure their messages are hitting home with the right viewers.

CTV is the future of TV advertising

More and more consumers are cutting the cord or otherwise shifting their viewing habits to streaming. That means it’s more and more important for brands — especially local brands — to understand CTV advertising and to use it to reach their audiences.

The good news is that CTV is not all that different from traditional TV in many ways, and even better than traditional TV in others. Madhive’s technology can help forward-looking local networks (and their advertisers) make the leap to CTV.