2019 ZypMedia State of Local OTT Advertising Report
2019 was a historic year for OTT content and advertising.
Throughout the year, news and events about high-profile streaming service launches, mergers and acquisitions, and CTV research were top of mind across the advertising industry—and for good reason.
We’ve been expecting this.
Industry predictions about viewer habits during the digital shift continue to be proven true or exceeded. Over the past five years, millions of U.S. viewers have dropped their traditional pay TV subscriptions every year7 and are establishing new digital watching habits, with an increasing focus on accessing that content in a CTV environment.
The level of OTT growth in the past few years provided a tipping point to push major local advertising industry change and innovation in 2019.
The impact of the digital shift has never been taken more seriously by advertisers than it is right now.
As the leading programmatic OTT platform for local media companies, we have a unique behind-the-scenes view of how local advertisers are investing in and using OTT advertising to get in front of target audiences.
We examined more than 20,000 campaigns that ran on our platform in 2019 from almost 6,000 local advertisers across the U.S. We compared the results to 2018 to better understand the impact the digital shift is having on the local advertising industry.
In reviewing the results, the overall takeaway is clear: advertisers are increasingly using OTT advertising in their strategy to get in front of local viewers, and given the increased spend and year-over-year growth, it must be working.
The higher than average growth rate of local-focused spend on OTT advertising is an indicator of its impact now and into the future.
The local OTT advertising spend growth rate was nearly 7x higher than the overall digital advertising spend growth rate in 2019.
eMarketer reports a 19.2% increase in U.S. digital ad spending in 2019, compared to 20181.
While this is impressive, especially when compared to their 4.5% decline in traditional media ad spending8, it is a much smaller growth rate than the change in spend we saw in local OTT advertising.
Local advertisers spent 127% more on OTT advertising in 2019, compared to 2018.
This increase in spending was supported by growth across all measured metrics.
We don’t see any signs of this growth declining as we head into 2020.
Outstanding performance from OTT advertising is a testament to how valuable access to the living room is.
Advertisers saw an average 97% VCR rate on their OTT campaigns run on ZypMedia’s platform over 2019, even higher than the already high 96% national average VCR reported by Extreme Reach2.
Advertisers from top categories continue to rapidly increase their local OTT advertising investments.
Advertisers in the automotive, health and fitness, and home and garden categories remained the top spenders on local OTT advertising in 2019, each category increasing their investments by over 75% compared to 2018.
Automotive and home and garden categories grew their OTT investments especially quickly, increasing over 2x. Education advertisers increased their spend a whopping 250% in 2019, bumping their rank into the top five as the fourth highest spending group.
Automotive advertisers quickly accelerated their OTT spend and crossed the finish line in first place.
Not only did automotive advertisers invest the most in local OTT advertising with 22% share of total spend, they also increased their OTT spend by over 156% compared to the previous year. That’s an almost 10x faster percentage change when compared to the automotive industry’s 15.8% change in digital ad spending overall reported by eMarketer3! This fast growth helped them remain the year-over-year leader in local OTT ad spend.
Home (and garden) is where the connected TV audience is.
Home and garden advertisers increased their OTT spend by 149% year over year in 2019, faster than any other category, besides automotive. What supported this rapid growth? A high campaign volume.
Advertisers in this category more than doubled the number of OTT campaigns they ran compared to the previous year, pushing the average number of campaigns run per home and garden advertiser much higher than any other top category.
OTT advertising spend grew coast to coast.
All four U.S. regions grew their local OTT investment at well over 100% year over year, with the Midwest region growing the fastest at 164%. Average VCR rates were higher and more consistent across all regions in 2019 compared to 2018.
Local OTT advertising investments followed census population trends in general. The exception was the Northeast region, where ZypMedia saw advertisers invest a 43% higher share of OTT spend compared to population share estimates, likely to get in front of coveted New Yorkers.
The highest share of local OTT spend occurred in the South, likely due to it being the most populous region in the U.S. Even though this region has the highest amount of investment, it also has the most opportunity with a share of investment 14% lower than the population share.
Where did viewers consume ad-supported streaming content in 2019?
OTT technology has opened up the number of ways viewers can find, access, and watch long-form video content that was traditionally only available through a cable box.
With so many options to connect, what kinds of devices can advertisers use to reach viewers now? Thanks to the power of digital data, we’re able to review details about the devices that garnered the most ad-supported viewing in 2019 and learn more about OTT viewing environments.
Streaming devices are king.
Seventy-seven percent of local OTT ads were delivered on a streaming box or stick connected to an existing television, followed by content accessed directly from a smart TV or game console.
Why are streaming devices so popular for free ad-supported OTT content? We think it’s because they are a cost-effective solution to access increasingly valuable and exclusive OTT content. They also provide more advanced user interfaces and better maintained integrations with major streaming content platforms.
Viewers were more likely to be using a Roku device when they were served a local OTT ad.
Over half of local OTT ads were delivered on a Roku device in 2019.
Roku and Amazon dominate the overall streaming device market share with a combined share of 69% of all streaming devices in Q1 2019, as reported by Parks Associates5.
Local OTT has a similar combined market share of 67%, but delivery skews much heavier towards Roku (53% compared to overall 39%) than Amazon (14% compared to overall 30%). This may be because Roku’s accompanying streaming service has such a rich ecosystem of ad-supported content options, while Amazon Prime, the streaming service brand associated with Amazon Fire TV devices, primarily offers a hybrid of subscription and transaction on-demand content.
What does the future of TV look like?
Looking back into the history of entertainment, advertiser sponsorship has always played a huge part in enabling content makers to create content that attracts and engages audiences of all kinds. OTT is no different—it’s simply the next generation of evolution in TV entertainment.
When Bulova ran their historic first television ad in 1941, it was an experiment. In the spirit of innovation, TV advertising technology continues to evolve and improve as industry leaders home in on better ways to deliver and target ads to viewers who are likely to increase their brand affinity or take action beyond the screen.
Understanding the viewer is key.
This increasingly intelligent connection to viewers is the driving factor behind the interest and investment in OTT across the media ecosystem. Adding the measurement power of the internet to the TV advertising mix is a game changer because of factors like speed, data insights, and automation of complex processes. We’ve only seen the beginning of what will be possible in the OTT era, and already the results are significantly changing the way major brands and agencies are distributing local ad budgets.
Having a better understanding of viewer preferences and trends also leads to new opportunities for publishers to create highly engaging, niche content. When viewers are getting what they want, they are engaged and spend more time with OTT content, giving publishers the ability to create more content, providing more available time to run targeted advertisements. Add the power of geo-targeting and other digital optimization, and advertisers have a smart toolset to customize advertising strategies to match the wants and needs of viewers, leading to higher engagement than other types of video or digital advertising.
2020 will be a historic year for the growth and adoption of ad-supported OTT by advertisers, publishers, and viewers.
While the $149B local advertising market6 is dominated by traditional broadcast TV, radio, and direct mail, the triple-digit OTT growth rates show that connected TV is an increasingly popular medium for local advertisers. The year-over-year accelerating growth trends show that 2020 is truly shaping up to be the year for ad-supported streaming in all of our living rooms!