Over-the-Top Devices: Where We Are and Where We’re Headed

Terra Mrkulic Social Media & Content Marketing Director

In the FreeWheel Video Monetization Report: Q4 2016 (VMR) we observed first-hand the tremendous growth of over-the-top (OTT) devices over the past two years. These connected devices have evolved from just 8% share of premium video ad views two years ago in Q4 2014 to a solid 27% in Q4 2016. The message from consumers to publishers aiming to increase viewership and buyers hoping to reach an engaged audience is clear: video will always have a home on the big screen.

OTT Has Something For Everyone

The IAB defines OTT devices as those that “can connect to a TV (or functionality within the TV itself) to facilitate the delivery of Internet-based video content (i.e., streaming boxes, media streaming devices, Smart TV’s and gaming consoles).” Viewers have flocked to OTT devices as these platforms enable communal and more immersive viewing. OTT devices also aggregate viewers’ favorite content in a single location, providing a one-stop-shop for premium video. In addition, OTT holds advantages for Advertisers – the large screen is inherently viewable and the living room environment is conducive to higher engagement. Advertisers also have the potential to achieve incremental consumer reach among cord-cutters.

However, OTT isn’t just one homogenous category. Streaming media players, connected televisions, and game consoles each provide a uniquely different entry point into the television set. Our data shows that Apple TV and Roku are the market leaders for OTT from a premium video ad view standpoint, accounting for a combined total of 73%. That being said, the two are nearly tied for the share of OTT ad views they represent, a shift from Apple TV’s 10% lead over Roku only a year ago.

What’s also noteworthy are the increases from Amazon TV devices and Chromecast. Chromecast nearly doubled its share to 8.5%, while Amazon TV increased its share of monetization to 6.5% from just 1% a year ago. Amazon released its second generation Fire TV device in October 2015.

Overall OTT ad views grew 40% YOY in Q4 2016. Though all OTT device types grew in monetization volume YOY in Q4 2016, some devices declined in ad view share. The growth of Chromecast & Amazon TV outpaced other devices to claim ad view share away from Apple TV and game consoles. The growth of the newer OTT devices is a sign that there will be greater fragmentation in this space to come, creating opportunities but also new challenges for both publishers and Advertisers.

Opportunities Remain to Create More Value

Despite the continued growth in monetization and viewership, inventory on OTT devices has not yet been widely embraced by many traditional media buyers. Although these devices are internet-enabled, they lack some of the capabilities that Advertisers have grown accustomed to on more established digital platforms, for instance, desktop. Measurement capabilities such as viewability and audience validation are either not supported by established vendors or reduced in functionality. This makes it even more difficult to accept demand from programmatic channels, which may filter out OTT supply because it does not pass their measurement requirements. Each device also has its own technical standards, leading to complex integration challenges and different creative specifications. Finally, viewers have higher expectations for user experience on the big screen, further pressuring publishers to optimize their ad experience.

On the bright side, industry players have already started solving some of these challenges. We have seen partnerships form between technology and measurement companies to improve targeting and measurement capabilities. Publishers are implementing functionality to improve user recognition to limit ad repetition and improve targeting on custom data sets. Publishers are also packaging their inventory to be more screen agnostic, especially for long-form and live content, to increase scale. Device manufacturers, including Roku through its Advertising Framework, are also establishing standards and investing in enhanced measurement capabilities. More education is also happening at the industry level, with the IAB publishing material aimed at equipping buyers with the right tools and information to make informed decisions.

What Lies Ahead

OTT has a positive future ahead. Viewers are increasingly gravitating toward the big-screen experience and the centralization of channels and subscriptions in a single location. Publishers are investing more in growing their OTT presence and expanding their content libraries to capitalize on the increased viewership and create additional inventory. Technology and measurement companies will develop advanced capabilities to ensure that OTT capabilities keep pace with the rest of the digital market.  Programmatic functionality will improve in parallel to meet the increasing demand in a scalable way. Monetization on the platform will grow across all content types as Advertisers become more educated on its advantages and considerations.

Scaling OTT will benefit the entire ecosystem from Advertisers to programmers to consumers. Stay on the lookout for our next research study further breaking down the nuances of OTT platforms.

FreeWheel’s Advisory Services team specializes in bringing insights and best practices around digital video monetization to professional content publishers. In addition to leveraging our data of over 200 billion annual worldwide video views for the VMR, our team provides actionable, revenue-driving business intelligence and research to FreeWheel clients around digital video content, monetization, and distribution. We have access to census-level ad monetization and viewership data across all digital devices – from desktop to OTT to Set-Top-Box VOD – which cannot be found anywhere else. We’ve partnered with many of the industry’s leading publishers to benchmark their performance against the overall industry as well as to highlight opportunities for growth. To learn about our extensive experience in this area or for questions about how our data can further your business goals, please send us a note. We look forward to engaging in conversation.