Why Marketers are Giving Digital Video a Larger Piece of the Advertising Pie

Advertisers are now turning to streaming services like Hulu and Roku to show their ads. This is because the digital advertising landscape has become very crowded, expensive, and difficult to measure. In addition, more people are cutting the cord and spending more time streaming content. This has caused brands to look for alternative ways to reach consumers.

Merrell Footwear plans to spend over half of its advertising budget on digital video in 2019. Last year, only 5% of the budget was allocated for this purpose. The shoe brand is now running three ad campaigns on ad-supported streaming platforms such as Roku, Pluto TV, Sling TV, DirectTV and Hulu.

Senior director of digital marketing at Merrell, Jane Smith, says that CTV and OTT spots across streaming platforms, including Hulu and television digital offerings, ABC local channels, A+E, BBC America, CBS and CNBC are the most important investment for her company this year. Other brands have taken similar measures over the last year, ramping up their media mixes to include more digital video. This is because people continue to stream their favorite shows.

“It’s trackable, it’s all programmatic and you get results,” said David Song, CEO of Rosie Labs ad agency. “So why wouldn’t we put more money into it?”

Advertisers say that they started to shift their spending away from social media and towards other forms of advertising like CTV and OTT starting in April 2019 when Apple released a new transparency policy for app tracking. This has made it difficult to measure the effectiveness of ads on social media, so advertisers are now spending more money on CTV and OTT. For example, last year Rosie Lab clients spent 30% of their ad budget on Facebook ads. That spend has fallen to about 10-15% of budget, according to Song, who did not provide specific figures.

eMarketer, a research firm, says that CTV (which is short for "connected television") is one of the fastest-growing channels in digital advertising. Last year, investments in CTV were expected to reach more than $13 billion in the United States and double by 2025. Pathmatics, a digital ad analytics platform, recently reported that on a monthly basis this year, advertisers are spending at least $1 billion on OTT efforts (which stands for "over-the-top," and refers to video content delivered outside of traditional cable or broadcast models). It's unclear what those figures were the year prior because Pathmatics began tracking ad intelligence data last November.

According to a media buyer, the current cost for advertising on streaming services like Tubi, Pluto, Hulu and Discovery+ can range from $15-$20 per thousand viewers. Meanwhile, the cost for advertising on streaming platforms like HBO Max and Peacock can range from $40-$45 per thousand viewers.

Rosie Labs' Song estimates that clients spent about 5 to 10% of their ad budgets in the CTV and OTT space last year. That number has since increased to upwards of 25 to 30%, according to Song. He did not disclose specific figures, but Rosie Labs works with clients such as Coca-Cola, Egglife foods, and Orbitz travel brand.

Creatively, it is similar to what is happening with other advertising platforms. Phil Patriarca, director of west coast partnerships at QuickFrame by MNTN, said that the company has seen an increase in requests for videos that are tailored to specific audiences on CTV/OTT channels. He declined to give specific numbers.

"We are seeing advertisers focus more of their time and creative budget on CTV/OTT to utilize this as a real performance channel," Patriarca said in an email.

The space for advertising is growing, and new players are entering the market. Erica Sperry, svp of investments at Hill Holliday, cautions advertisers that there is no one-size-fits-all approach to CTV/OTT. "Continue to test," she said. "Just because something didn't work yesterday doesn't mean it won't work in the future."

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