By Matthew Driscoll, Director of Product Strategy, Telestream iQ
Dynamic Advertising Insertion (DAI) promises benefits to all parties involved in the advertising workflow – buyers, sellers, and consumers. Benefits are fueled by dynamic advertising advancements that enable targeted advertising campaigns based on complex ad decisioning to reach target audiences whether through direct or programmatic ad sales. This DAI technology is driving monetization strategies to keep pace with the tidal shift from broadcast television to streaming services as the latter continues to inch towards being the predominant mechanism for video consumption. Addressable advertising is making Advertising Video-On-Demand (AVOD) and the surging Free Ad-Supported Streaming TV (FAST) segment, the dominant OTT service category. To capitalize on this strategy, OTT service providers and content owners must ensure that the ad insertion infrastructure performs as designed or they risk missing out on valuable ad revenue and degraded quality of experience for consumers.
Once you start to dig into the technology required for a DAI solution, you’ll uncover a complex environment that includes real-time in-band signaling that propagates through multiple transitions and on-the-fly customization for each viewer that requires multiple systems to coordinate ad decisioning, placement, and delivery. It’s no wonder why current fill rates are running at 80%-85%. Advertisers on OTT services packed with linear TV channels are getting nowhere near the virtually error-free ad performance they are accustomed to in the legacy environment.
OTT service providers and their content suppliers are incurring revenue losses they can’t afford, and advertisers are losing touch with far too many potential customers. Compounding the problems, poor or non-performing ads are spreading the losses downstream as viewers respond to delayed ad starts and picture quality problems by abandoning the content.
Fortunately, a more favorable ad-performance outlook is available to service providers who implement quality control mechanisms to support TV-caliber advertising performance with all the benefits accrued from dynamic advertising. When ads don’t play, the reasons why are instantly exposed and addressed. Allowing service providers to meet the stringent challenges posed by real-time ad placements of live streamed video to mass audiences, as well as the less-daunting challenges related to DAI in on-demand streams.
The Ascendancy of Advertising in OTT Video Monetization
The sheer momentum of Over-The-Top (OTT) video consumption worldwide is the starting point for what’s in store as advertising moves to center stage. As summarized in Figure 1, multiple research reports offer projections tracking the huge share of the connected population taking advantage of video services streamed by OTT providers.
The global OTT market, valued at $44.54 billion in 2021, is expanding at a 17.7% CAGR and is on course to reach $139 billion by 2028, according to Fortune Business Insights.[i] This is driving the global pay TV revenue in the opposite direction, from a peak of $202 billion in 2016 to a projected $136 billion by 2027, as calculated by Statista.[ii]
As of 2020, only 28% of U.S. consumers were OTT-only subscribers, according to a survey performed by market research firm Piplsay.[iii] But a study produced by Pew Research showing the pace of the retreat from pay TV across younger age groups in the U.S. makes clear that OTT is likely to dominate in the years ahead (Figure 2).[iv]
Source: Pew Research
The FAST Explosion
The successes of FAST services underscore the proposition that relying entirely on advertising for monetization can draw huge audiences even when content lacks the mass market appeal of mainstream TV channels. Much of the FAST growth has been centered in the U.S., where hundreds of single- and multi-channel FAST services operating at no cost to viewers are generating revenue that’s projected by nScreenMedia to nearly double from $2.1 billion in 2021 to $4.1 billion in 2023.[i]
A major trailblazer in awakening the marketplace to FAST potential is Pluto TV, now owned by Paramount. When Pluto TV was acquired in 2019, it averaged 22 million monthly viewers. Now it’s averaging 68 million viewers, with access to over 48,000 titles.[ii] Overall, as of YE 2021, there were 89.2 million monthly FAST viewers in the U.S., according to eMarketer.[iii]
Now the trend is rapidly taking hold worldwide, sparking the next phase in OTT video disruption with the lines blurring between what have largely been niche FAST channels and mass market AVOD content. As Variety notes in its latest “Life in the F.A.S.T. Lane” report, a majority of traditional media companies and professional sports leagues now operate FAST channels.[iv] “FAST has quickly moved from an area dominated by start-ups and digital brands to the latest avenue for established media and entertainment companies,” the report says.
New Service Strategies Driven by DAI
Whereas traditional linear TV 30-second spots typically garner between $10 and $25 per 1,000 viewer impressions, FAST channels generate $40-$50 CPMs.[i] The economic rationale is obvious.
One major case in point is how the upsides are prompting big media players and market newcomers alike to explore how to attain market advantage at the crossroads between FAST and AVOD. An early step in this direction was taken with the 2019 acquisition of FAST service Pluto TV by ViacomCBS, recently renamed Paramount. Paramount is marketing Pluto channels as a way to draw users to its Paramount+ AVOD service.
More recently, Comcast-owned NBCU launched Peacock Free, which offers more than 7,500 hours of on-demand and some live sports programming along with next-day access to the channels available through the Peacock Premium AVOD service. Elsewhere, OTT providers are going even further.
For example, British broadcast consortium ITV is now offering an ad-supported, subscription-free lineup of linear broadcast and premium programming while continuing to offer a subscription service that carries additional premium content. In Germany, Rlaxx TV offers an integrated hybrid model that enables seamless surfing across the programming interface between its FAST and AVOD content for AVOD subscribers and, for those who are not, a ready inducement to sign up for AVOD from the FAST UI.
The Rising Costs of Poor Ad Performance in the DAI Era
The OTT market’s growing dependence on dynamic advertising points to the fact that service providers and content owners can’t hope to thrive with ad placement and quality performance remaining at current levels. Global tracking by Conviva over the past two years revealed average rates of missed ad opportunities ranging from 15% to 40%.
What’s at stake can be seen using Digital TV Research’s $33-billion 2021 global ad revenue estimate cited in Part 1 as a baseline. A rough calculation of what missed ad opportunities at 15% in 2021 would have cost the service and content providers in the global OTT comes to $5.8 billion. (If $33 billion is 85% of what would have been taken in at 100%, the 100% total would come to $38.8 billion.) At the $70 billion ad revenue total projected for 2027, non-performance at the 15% rate would equate to $12.3 billion in lost revenue (Figure 3).
What this rate of missed advertising opportunities means to individual service providers can be calculated using a hypothetical example where a large OTT operator’s subscribers participate in 200 million sessions viewing an average of three ad breaks per session with an average of three ads per break, translating to an average of nine ad views per session or 1.8 billion overall. Even if we assign a low average CPM rate of just $10, the 15% ad failure rate would translate to an annual revenue loss totaling $2.7 million.
All of this is bad enough, but there’s much more to take into account when considering the losses stemming from maintaining the status quo in ad performance. These setbacks start with the losses that will be incurred when advertisers abandon poor-performing advertising environments in favor of streaming outlets that can deliver virtually flawless performance across all screens with the benefits from per-stream DAI.
The Comprehensive Reach of Telestream DAI Monitoring Platform
In light of the mind-boggling complexities and instantaneous timing now in play with OTT advertising, it’s reasonable to ask whether it will ever be possible to achieve ad performance on par with traditional TV advertising. That brings the focus to whether there’s a way to prevent malfunctions across this complex infrastructure from pushing overall performance averages to unacceptable lows. What’s needed is a quality management platform that can monitor all points where evidence of problems can be identified in real-time across the end-to-end distribution chain with the analytical intelligence to guide corrective action. This includes the ability to trigger automated alerts enabling technicians to quickly address root problems when manual intervention is necessary.
Things will go wrong, but instant action can prevent them from degrading average ad performance to unacceptable levels. Making this possible with how DAI works in this new OTT advertising era is what Telestream Dynamic Ad Insertion Monitoring platform was designed to do. DAI Monitoring is a subset of the groundbreaking Telestream iQ Video Quality Monitoring and Analytics Platform. To learn more, read the new white paper titled: “Anchor Success in OTT Shifts to DAI with End-to-End Ad Quality Management”.[PL1]
 Fortune Business Insights, OTT Market Size Worth USD 139 Billion in 2028, May 2022
 Statista, Global Pay TV Revenue from 2010-2027, May 2022
 NextTV, Over 25% of Americans Are OTT-Only Viewers, February 2020
 Pew Research, Cable and Satellite TV Use has Dropped dramatically since 2015, March 2021
 nScreen Media, US FAST Market to Reach $4.1 Billion in 2023, August 2021
 Cord Cutters News, Pluto TV Introduces New Categories and Adds Two New Channels, July 2022
 eMarketer, US AVOD Viewers to Surpass 50% of Digital Video Viewers, September 2021
 Variety, Life in the F.A.S.T. Lane: A Special Report, October 2021  Harmonic, A Guide to Launching a FAST Channel, February 2021