Ever since the launch of major video streaming services from Netflix and Hulu a little more than a decade ago, media prognosticators have been forecasting the rise of cord-cutting — that is, consumers cancelling their traditional pay TV service in favour of over-the-top (OTT) streaming services accessed through an internet connection.

While it took several years for cord-cutting to gain traction, recent data suggests the trend is accelerating due to an explosion of OTT services and content, consumers seeking better deals and younger consumers forgoing traditional subscriptions altogether. In the process, it’s fundamentally changing the way brands buy advertising across TV and video.

Per a recent report in Variety, the latest financials from major cable and satellite pay TV providers point to hastening losses of traditional subscribers. The five largest pay TV firms — AT&T/DirecTV, Charter, Comcast, Dish and Verizon — lost a combined 3.2 million traditional US subscribers in 2018. That’s a year-over-year decrease of 4.2 per cent, which is a greater loss than these firms experienced in 2017 (-3.7 per cent) and 2016 (-2 per cent).

Furthermore, one research firm estimates that the number of cord-cutting US homes will almost double between 2018 and 2023, from 23.3 million to 40.8 million, respectively. In other words, within four years’ time, close to one-third of US homes with broadband access won’t subscribe to a traditional pay TV package. That’s a big shift that will affect how brands approach TV and digital video advertising in the future in three key ways:

  • Greater fragmentation: While US advertising spending on OTT services grew 40 per cent in 2018 to reach $2 billion, it’s spread out across a wide variety of outlets. Ad-supported video on-demand (AVOD) providers like Hulu and Roku; virtual multichannel video programming distributors (vMVPDs) like DISH Sling and YouTube TV; network programmers like CBS, Disney and Viacom; and other providers like ad tech firms and traditional broadcasters all provide varying options for buying OTT ads. My colleague Eric Schmitt details all of these options and in his recently-published research about OTT advertising opportunities (Gartner client subscription required).
  • New ad opportunities: Rising OTT usage gives advertisers new opportunities to reach younger audiences, who are more difficult to reach via traditional, linear TV advertising. According to a study from the Video Advertising Bureau, 1 in 10 US adults ages 18 to 24 watch TV solely via OTT services, compared with just 3 per cent of US adults ages 35 to 49. Additionally, advertisers can use OTT services to extend their existing TV and digital video ad campaigns, as well as experiment with innovative ad formats that give audiences more control and input over their ad experiences.
  • Measurement challenges: With myriad services, device types and ad formats in a still-nascent OTT space, measuring reach and outcomes in a consistent manner remains elusive. While major measurement firms like Comscore and Nielsen continue to make strides at aligning metrics across platforms, unification is a continually moving target and not yet attainable. In another excellent piece of research from Eric (Gartner client subscription required), he advises that ad buyers need to expect imperfection in the near term. Nonetheless, try and learn something from each campaign and test questions that can be feasibly measured, like understanding OTT performance relative to other channels like digital video, addressable TV and linear TV.

Cord-cutting and OTT proliferation will likely continue on their interconnected trajectories over the next several years. Start experimenting now by setting realistic expectations and identifying opportunities that deepen expertise and set your organisation up for long-term success.

*This article is reprinted from the Gartner Blog Network with permission. 

Previous post

A state actor has targeted Australian political parties – but that shouldn’t surprise us

Next post

Poor data strategies behind costly failed CX projects: Microsoft

Join the digital transformation discussion and sign up for the Which-50 Irregular Insights newsletter.