Linear TV still reigns for range, but CTV and OTT raise conversion rates by targeting consumers most likely to buy

Today, linear TV still holds the crown and scepter when it comes to video advertising. Traditional TV’s range makes it invaluable for the biggest advertisers in the game, but change is in the air thanks to smart TVs, streaming services, and connected devices like gaming consoles. As linear TV advertising costs rise, challengers have sprung up in the form of over-the-top (OTT) video and Connected TV (CTV). CTV's influence grows steadily year over year — spending increased by more than 25% in 2023 — and forecasters predict the CTV and OTT services trend will continue to rise. CTV-first buys are now as popular as linear-first. The upstart is coming for the video content crown.

Linear TV retains some advantages over OTT video and CTV campaigns, but there’s a suite of compelling reasons your business might consider committing ad spend to OTT content and stepping into the future.

Check out our comprehensive guide, "Advertising on Television: Everything You Need to Know About the TV Medium" for even more helpful resources.

TV Advertising Effectiveness vs. OTT Advertising Effectiveness

Linear TV’s great strength is its massive reach. Traditional cable TV programs have an unparalleled ability to deliver ads to American audiences spanning a wide range of demographics across the country, not to mention international TV viewership. That great reach comes with a tradeoff: Measuring the performance of national TV ads is extremely difficult. There’s no direct link between the ad itself and any conversions that may come from it. Additionally, going wide with your audience targeting when you advertise inevitably means trying to sell your product to legions of people who don’t need it in an effort to reach the ones who do.

In many ways, OTT and CTV devices function as foils or complements to linear TV. They lack the reach of national broadcasting networks like NBC or CBS, but they excel where their older brother stumbles. 

Using digital, on-demand channels means that marketers can build ad campaigns using granular details, down, sometimes, to individual households, specific times, and specific channels. This makes audience targeting and real-time retargeting much easier for OTT and CTV vs traditional channels.

It also often means individual campaigns lead to a higher number of conversions per spot, and with OTT and CTV’s tracking capabilities, advertisers can view the entire buyer journey from ad to purchase. Advertisers who use OTT and CTV advertising say the primary performance-related benefit is achieving brand awareness and performance marketing goals (38%), but nearly as many cite detailed reporting, measurement, and insights (30%), improved ad relevance (29%), attribution capabilities (23%), and overall outperformance of linear TV (25%), per Statista.

OTT and CTV also play well with others. Many advertisers who use the formats say their ability to extend the reach of linear TV campaigns is the primary audience-related benefit of video-on-demand platforms like OTT and CTV (40%). The synergy doesn’t end with linear TV — search and social app advertising can benefit when combined with OTT and CTV, and creative can often be reused effectively across the platforms.

TV Advertising Cost vs. OTT Advertising Cost

Advertisers spent a total of $66.64 billion on TV advertising in 2022. Much of that came from upfront media buying, where prices are set according to TV ratings. In the 2022-2023 season, the median price among the 90 or so shows tracked by AdAge landed around $82,000, with the most expensive slots belonging to The Voice ($227,499) and Sunday Night Football ($828,501). 

For cable TV upfront advertising, these numbers translate to a cost per mille (CPM) of $19.45 in 2019-2020. Network TV upfront advertising had a CPM of $36 that year.

The truth is that TV advertising costs vary widely, with several factors affecting the total including the length of the spot, when it airs throughout the seasons and days, and where it plays.

Examining OTT Advertising Costs

In recent years, spending on OTT and CTV advertising surged, reaching $26.92 billion in 2022, but it’s yet to reach the scale of linear TV. The average CPM for YouTube videos ranges from $20-$25, while CTV CPMs run $35-$65. According to Digiday, the majority of CTV ads are bought through standard insertion orders with streaming ad sellers (70%). Ad networks typically connect advertisers with the available OTT and CTV slots.

OTT advertising cost is affected by:

• Platform: Streaming platforms like Netflix, Amazon Prime, Apple TV, Disney+, and others will charge different rates based on the size of their audience and the capacity of their ad inventory.

• Target Audience: The more specific a target audience, the more expensive it is to reach. Targeting a specific age range, in a specific location, with specific interests will cost more than going wide.

• Ad Format: Videos are more expensive than a display ad on the Amazon Fire Stick or Roku home page, for example. 

• Competition: In-demand slots are more expensive. Competition can change according to audience size, demographics, and surrounding content, so slots around the most popular shows — say Hulu’s “Only Murders in the Building” or a Lakers game on Hulu + Live TV — tend to cost more.

So why pay a higher CPM for a smaller audience? For one, advertisers can choose to pay based on more performance-minded metrics. OTT advertising frequently charges by cost per view (CPV), cost per completed view (CPCV), or CPM rather than at a flat rate based on viewership estimates. 

Another reason is that 30% of CTV ads are now being purchased programmatically through third parties like demand-side platforms, unlocking a world of efficiency. Algorithms place ads according to what demographics watch what shows and when, which may cost advertisers some control over when their ad airs, but provides them with significant conversion improvements. On average, 23% of CTV viewers make a purchase after seeing an ad, whereas only 12% of linear TV viewers do.

OTT and CTV are still fast-growing, as is programmatic advertising. Linear TV networks are wary of the technology, as they fear it will degrade the value of their inventory, but OTT and CTV providers are leaning in to provide advertisers maximum value as they reach across OTT platforms from Xbox and Playstation consoles to laptops and smartphones. If you’re interested in exploring that value for yourself, tvScientific is here to help. 

To learn how our proprietary performance advertising platform can benefit your business, get in touch today.