Digital ad tech companies are making their play to control advertising on CTV. But it’s not easy to become a star of the big screen.
Ad tech companies that make it big in CTV must earn their spot in a few ways. First, they must understand the supply constraints of CTV and find their niche. Next, they must understand where programmatic does – and doesn’t – provide value. And, finally, they must understand how identity and privacy will play out in CTV.
The supply problem
The pool of programmatic CTV inventory is small. First, upfront buyers grab huge slices of a programmer’s inventory. Then, direct-to-publisher deals eat up even more inventory. What’s left for programmatic transacts mostly through private marketplaces. Only a small portion of content owner-controlled inventory enters the bidstream.
About 90% of all the transactions that happen are private across OTT buys, said Mike Shehan, CEO and founder of SpotX.
Because of those constraints, DSP-traded CTV inventory will account for just $9.5 billion in advertising spend in 2021, according to Jounce Media, which represents a small piece of the TV advertising market. Meanwhile, hand-sold broadcast and CTV will total $142.9 billion.
Finding inventory to represent (if you’re an SSP) or buy (if you’re a DSP) can be tricky.
“The majority of the premium inventory is ending up in walled gardens, either controlled by the TV networks or Roku and Hulu,” said Jamie Power, chief data officer of Cadent, an addressable TV platform.
The reasons for this supply shortage are manifold. TV content is expensive to produce. And while a webpage can “magically” create more supply by going from three to four ads on a page, TV ads take time to watch. Lighter ad loads are also the norm.
The early programmatic adopters of CTV hold tight to the inventory they represent. On the sell side, Freewheel (owned by Comcast) and Magnite (which includes Telaria and recent acquisition SpotX) dominate. The Trade Desk is considered the CTV leader on the buy side.
In the TV space, rather than representing media companies as independent partners, ad tech firms are often owned by programmers. Having observed the trajectory of digital display, programmers, device manufacturers and operating systems understand the power of controlling the pipes to their supply.
A few examples: Roku (which bought DSP dataxu), Comcast (which bought DSP Beeswax), WarnerMedia (which bought AppNexus) and Samsung (which bought a controlling stake in Alphonso). Hulu built an ad server Disney plans to use across all of its media. Amazon uses its own tech. YouTube is only accessible through Google’s DSP.
And so, for now at least, programmatic CTV is gaining strength by competing for the leftovers.
“I think the winners have been crowned already – for the most part,” said Rob Aksman, president and chief strategy officer at interactive TV company Brightline. “Everyone else is fighting over the scraps of the tier-three publishers, and that’s where you have audience extension and people spoofing bundle IDs.”
In other words, as in the web’s early days, programmatic demand for TV inventory is generating sky-high CPMs and attracting fraud.
Despite these challenges, CTV is a tempting prize for independent ad tech. That $9.5 billion may be a small piece of the overall TV pie, but it’s a hefty slice of programmatic. Per Jounce Media estimates, open programmatic on display totals $52.7 billion.
Finding the “killer app” for programmatic CTV
The programmatic value prop in CTV is different from the open web.
Frequency controls in a DSP are the “killer app” for programmatic CTV, said Chris Kane, principal at Jounce Media. They improve reach and reduce waste.
Because programmers must share their inventory with the tech and software companies that distribute it, a buyer working with both programmers and distributors could end up overserving the same ads. DSPs are trying to solve for that issue by letting buyers manage pacing, identity, ad delivery and measurement, said Mike Fisher, VP of advanced TV at Essence Global.
But the current supply constraints in CTV eat into that value proposition. The ability to serve ads to targeted groups in CTV is compromised when DSPs and SSPs aren’t given access to supply.
“The scarcity of impressions cuts into audience targeting,” Fisher said, “which makes it that much more important that an SSP or DSP looks at impressions.”
So, it’s notable when programmers such as Disney say they’ll allow DSPs like The Trade Desk to see more inventory to improve forecasting, as the programmer told buyers this spring.
Programmatic CTV’s identity challenge
When many companies talk about the ease of “cookieless” CTV, what they actually mean is that they can use an IP address to target ads. Other devices connected to the same IP address allow for cross-device targeting and measurement within a household.
Courts and the law have been conflicted over whether IP address constitutes PII. If the privacy goalposts move, programmatic ad tech companies are likely to become more reliant on authenticated identity captured by TV app owners. Such a move could fragment identity further, creating new urgency for DSPs to develop technology solutions that can stitch identity together again. This scenario should ring a bell to anyone familiar with the digital display landscape.
One area of promise is OpenID from OpenAP, which would create a universal identifier (and would be compatible with UID 2.0).
But why rent when you can own? TV ad sellers with a DSP may have a leg up because they won’t rely on identity signals passed in the bid request. Roku is a strong example of this approach, with its DSP OneView built from its dataxu acquisition.
“As a DSP, we are invested in creating a strong identity spine,” said Roku VP of product management Louqman Parampath. Its RIDA (Roku ID for advertisers) uses its logged-in data to build identity. It also allows channel partners, such as programmers, to use its API to access the RIDA. Via its DSP, the identity graph is accessible for a fee.
Savvy buyers take a close look at how content owners build identity.
“If you don’t have a good identity solution and don’t know who your viewers are, it’s hard to target,” said Tracey Scheppach, CEO and co-founder of TV activation company Matter More Media. She estimates that even logged-in identities are only about 50% accurate. In order to bolster their identity data, TV suppliers must work with additional identity resolution companies.
“If DSPs do want to have long-term value in the ecosystem, they need to provide that unified identity solution,” said Essence Global’s Fisher.
Does CTV have room for DSP and SSPs?
But what if CTV not only doesn’t have enough supply for ad tech companies – or room for both the DSP and SSP technology layers?
Across programmatic overall, there’s an increasing trend of DSPs getting closer to publishers, and SSPs getting closer with buyers. SSPs can sell deals directly to buyers, and DSPs can set up RTB endpoints with publishers. The cost of setting up and maintaining a direct programmatic connection has gone down in recent years.
Some CTV apps are being approached by DSPs to set up direct connections. In such a setup, the DSP bids directly into the publisher’s inventory. Fees are lower and DSPs can get better access and visibility into inventory. Because there are so few CTV apps with scale and quality content, it’s feasible for DSPs to set up direct connections to their top 10 or top 50 sources of supply.
Tubi, for example, which operates its own ad server, allows DSPs like Trade Desk to bid directly into its inventory.
“You would reasonably expect that they are the small, scrappy proof-of-concept,” Jounce Media’s Kane said. “Just like the early days of programmatic web advertising, companies that are not tied to a legacy business model can move fastest and lead the incumbents.”
CTV as escape hatch
But now here’s the cynical take. Ad tech is following the CTV ad dollars – and also looking to the TV screen as an exit strategy.
Because the $52.7 billion display and mobile world is an increasingly inhospitable place.
CTV’s cookieless nature provides an escape hatch of sorts for companies that doubt their ability to survive the cookiepocalypse. Plus, walled gardens haven’t consolidated all the CTV inventory – yet.
Want an exit? Stand up a tiger team building out a CTV product, issue a few press releases and wait for the investors (or acquirers) to roll in. Ad tech companies seem to be getting snapped up shortly after they plant their first flag in CTV.
“They have to talk about CTV, otherwise the market will smoke them,” said one senior ad tech executive skeptical of many new entrants. “But they just don’t have the connections.”
Even so, could a smart, scrappy ad tech company unseat a current leader? Absolutely.
“We as an industry just need to prove to these content owners that they will make 3X if they run programmatic auctions,” Kane said. “They have not bought in yet.”