CTV Advertising—What It Is and How It Works

CTV Advertising—What It Is and How It Works
By Jenny Thompson, Product Marketing
February 22, 2023

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

More than 39.3 million U.S. households were expected to have cut the cord from traditional pay TV by the end of 2022 (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. 

If you’re not familiar with the channel yet, you should be — here’s what you need to know about CTV advertising and how it works. We’ll cover:

  • What is connected TV advertising?

  • The evolution of TV advertising

  • 5 key advantages of CTV advertising

  • How does CTV advertising work?

  • How to buy CTV advertising

  • CTV for local advertisers

  • Does CTV advertising work?

What is connected TV advertising?

Connected TV (CTV) advertising refers to video ads that are delivered via a streaming service during a viewer’s movie, TV show, or other video content — and viewed on an actual TV set. This viewing could be either directly on a smart TV or via a connected device like a Roku or Fire 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 “CTV” and “OTT” 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?

chart showing examples of CTV (Roku, Amazon Fire TV, Playstation 5, Apple TV, Chromecast) and OTT (Hulu, Disney+, Peacock, Amazon Prime)

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.

List of quotes including: 
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 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 key advantages 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).

quote pulled out, "...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)."Image of a CTV targeting cheat sheet including: 
Geography: DMA, zip code, political districts, etc. 
Demographic: age group, household income, education, etc. 
Behavioral: Purchase intenders, interest groups, etc. 
Campaign constraints: Frequency across providers, max goals per provider, etc.

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. 

“It’s an incredible amount of sensitivity for brands that need to reach specific audiences, while avoiding others, something especially important to niche brands,” explains Bianca Reed, VP of Account Management Global Tracking for marketing services company Material+.

Some of your best CTV targeting options to get familiar with include:

  • Retargeting

  • Lookalike targeting

  • Contextual targeting

  • Geolocation targeting

  • Time-of-day targeting

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, an auto dealership with three locations can send the appropriate commercial to the viewers closest to each location.

Adam Helfgott, Madhive CEO, explains:

Quote that reads, "We are seeing demand for big TV advertisers to efficiently target against hyper-local audiences and geographies at national scale."

Digital TV also allows advertisers to tune campaign planning and performance in real-time, so they can move ad spend to different markets and hit national KPIs similar to a reach barometer.”

Precise geolocation targeting is particularly useful for political campaigns that need to reach specific voters in very specific locations — from specific states to even specific congressional districts. 

For example, heated races like New Hampshire’s Congressional District 01 and Pennsylvania Congressional District 07 generated more political ad impressions during the 2022 midterms than other districts across the country.

Related Content: As elections approach, impressions, CPMs, and more are shifting

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 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. 

For example, one leading quick service restaurant brand used footfall attribution to measure CTV performance in their key markets. Out of all the people that saw the brand’s CTV ads, the fast-food chain could see which people then visited a restaurant location. They also had data on which creative, publishers, dates, etc. worked best to get diners into their restaurants.

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. 

One luxury retail brand took advantage of in-flight optimization to generate millions of incremental dollars with their CTV ad campaigns. They wanted to learn what combination of creative versions, audiences and channels would drive the best outcomes, so they cloned campaigns and modified only the variables that required changing. 

This retailer took advantage of this capability over the course of several campaigns to optimize performance in-flight — and conversion rates increased by 8%. In their most recent campaign, this resulted in a 23.5X return on ad spend which created a $4 million lift in revenue. 

Related content: 4 benefits of OTT advertising you don’t want to miss

How does CTV advertising work?

When advertisers buy advertising on CTV, their ads are shown to viewers during the movies, TV shows, and other videos they stream on their connected television. 

Where are connected TV ads shown? The streaming video content in which ads are shown is provided by networks and publishers like Hulu, Peacock, Tubi, and Pluto TV. Both Netflix and Disney+ recently began offering ad-supported video content, too. And these CTV ads are shown via a variety of CTV devices, such as smart TVs, Roku, Apple TV, and Amazon Fire TV Stick.

How do the ads actually end up on viewers’ screens? Many are served programmatically, through a complex auction system. Journalist Cleo Abram explains:

Learn more about TV advertising from Cleo: TV Advertising Explained

How to buy CTV advertising

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

List of the process including: 
1. Start with a strategy
2. Choose a CTV platform
3. Choose a CTV ad type and produce the ad 
4. Define the target audience and execute
5. Measure and optimize performance

1. Start with a strategy

Before you spend a single dollar, it’s important to identify your goals for your CTV campaign. Some questions you might want to ask yourself are: 

  • Who do I want to reach?

  • What action do I want that audience to take?

  • How does this work in tandem with my other marketing efforts?

  • What tools do I need in order to make this happen?

Your answers will inform what sort of CTV advertising platform you choose, what kind of ads you produce, how you target, etc.

2. Choose a CTV advertising 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. You can choose between: 

  • Smart TV manufacturers like VIZIO and Samsung

  • Streaming sticks like Roku and Amazon Fire

  • Video streaming services like Hulu and Peacock

  • Demand-side providers like Madhive

First, decide how you want to buy your CTV advertising. Some of the most popular options include:

  • Direct sales

  • Private marketplace (PMP)

  • Programmatic guaranteed (PG)

Advertisers can buy CTV advertising directly through a streaming service provider like Hulu, for example, 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 content).

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

The right CTV advertising platform can be the difference between reaching your goals and wasting ad spend. Beyond how you buy, you’ll also want to be on the lookout for capabilities like:

  • Precise targeting capabilities, including an ecosystem of DMP, first-party data, third-party data providers

  • Attribution data that allows you to understand both digital and IRL impact

  • Actionable in-flight recommendations to optimize campaigns

Related content: How to evaluate CTV advertising platforms

3. 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 Cannaluxe and Neiman Marcus used a QR code in their CTV campaign to drive 3.4X sales in key DMAs.

4. 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, your next step is to launch your CTV ad through your chosen ad platform.

5. 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. 

Related content: 8 connected TV metrics that linear TV advertisers love

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.

Joe Marino, SVP at Madhive, explains of local advertisers

"They are now able to reduce a bunch of waste, they can look at how their schedules are performing across screens—linear and connected TV or OTT—and they can also now consolidate all of that view into one platform which makes their workflows much easier.”

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.

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