CTV Advertising Can’t Replace Linear TV Fast Enough

It’s beyond cliché by now to say the streaming TV model is “going back to cable,” but, frankly, the historical parallels could not be more ironic if penned by a heavy-handed dramatist.

“Will Cable TV Be Invaded by Commercials?” ponders a New York Times headline from 1981, over a story that begins by noting, “There has been a widespread impression — among the public, at least — that cable would be supported largely by viewers’ monthly subscription fees. These days, however … cable experts are talking as glibly about the potential advertising revenues as they are about opportunities for programming.”

Replace “cable” with “streaming,” and almost that exact same paragraph could run in The Times this very day, as we enter a year in which connected TV advertising — the ad category including SVOD, AVOD and FAST — is expected to truly come into its own.

CTV is projected to be the fastest-growing channel for ad spend in 2024, with international advertising giant Dentsu forecasting nearly 31% global spending growth in the category year-over-year. Meanwhile, investment company GroupM projects ad revenues from CTV to increase 13.8% in 2024, a bigger annual jump than “pure play” digital ad revenue (including retail, search and social media). Revenues will reach $16.6 billion in the U.S. alone this year, per GroupM’s forecast.

This growth will be fueled by the continuing entrance of new players into the streaming ad game — Amazon’s Prime Video will introduce commercials later this month — as well as the continued ramp-up of streamers’ ad-supported tiers, in terms of both subscribers and engagement levels.

“The thing we’re really excited about is the engagement,” Netflix president of advertising Amy Reinhard said at the Variety Entertainment Summit at CES 2024 last week, noting more than 85% of the streamer’s ad-tier users spend two or more hours watching Netflix per month. Meanwhile, she added, the ad plan has surpassed 23 million global monthly active users, a respectable leap from 15 million a little over two months ago.

It’s perhaps unsurprising, then, that Netflix’s ad revenues are expected to increase sharply this year, from 2023’s estimated $685 million to more than $1 billion in the U.S., per Insider Intelligence, while Amazon will more than double its CTV ad revenues from about $1.4 billion to upward of $3 billion.

This is all well and good for those pure-play tech companies, of course, but this growth is likely going to come at the (further) expense of traditional TV advertising. GroupM sees these revenues falling 10.7% in the U.S. in 2024, which will not be offset by CTV’s gains. U.S. TV ad revenue is expected to drop 5.1% overall, to $62.3 billion.

It’s hardly news that linear TV’s fortunes are declining, but it is noteworthy that the accelerating migration of ad dollars to CTV — one of, if not the single best, hope for legacy media companies to turn a profit in streaming — is bleeding the cash cow of broadcast and cable advertising dry at the same time.

Indeed, cable networks alone generated nearly $30 billion in U.S. ad revenues only five years ago but brought in just $22.4 billion in 2023, according to S&P Global Market Intelligence data. While the ad market on the whole saw improvements in the latter half of last year, TV did not, with all of the major media giants pinning poor Q3 linear network earnings on the weak advertising environment.

Based on GroupM’s projections and other advertising forecasts, that outlook is unlikely to improve this year, meaning legacy media companies have little choice but to plow ahead with growing their streaming ad tiers, in the hope that CTV can grow large enough to replace linear as the media sector’s money spinner.

The question is, can it?

Impressive growth trajectory aside, CTV revenues are still dwarfed by linear TV’s, due to lighter ad loads and the small scale of ad-supported streaming relative to broadcast and cable’s massive reach. Madison and Wall analyst Brian Wieser, for one, projects a 24% decline in available U.S. TV ad inventory by 2027.

It seems likely streaming ad loads will grow over time; hearken back again to the NYT in 1981 and recall that cable ad revenues were once described as “minuscule” — just $45 million in 1980. And the financial rewards of increasing ad inventory on streaming are going to be too great for any self-respecting business to pass up; it will simply be a matter of growing them gradually enough not to alienate viewers.

There are also significant opportunities in innovative ads that should help to expand revenue. Disney is already exploring bringing shoppable ads to its streaming platforms, and Amazon is certain to expand such ads on Prime Video to tie into its e-commerce platform after experimenting with the format on its Black Friday NFL broadcast.

Meanwhile, the demise of cookies on digital platforms — which will surely be accelerated by Google ditching the technology this year — will push more brands to CTV ad formats, where they can leverage a wealth of viewer data to better target ads to consumers.

GroupM, for its part, projects global CTV ad revenues to reach nearly $46 billion by 2028, noting the category could account for more than half of total TV revenue by 2026. But that’s probably small comfort to the companies dealing with demanding investors and very real secular decline right now, who will see the linear TV business continue to erode at an increasingly nerve-wracking pace between now and 2026.

Legacy media’s best hope, therefore, is to continue pushing customers to ad-supported plans and pray that revenues can accelerate faster than analysts expect — and, potentially, start to grow streaming inventories as consumers get more used to watching ads there. It’s hardly a perfect strategy, but considering these companies essentially opened the vein for their own bloodletting, they can hardly complain about imperfect strategies.