Roku: Reaction to its 2024 Prediction
Published in partnership with Roku
As part of a series of predictions heading into 2024, Roku is highlighting how advertisers are, effectively, following consumers who are “cutting the cord” with their budgets.
The primary points in Prediction #1 are that “for decades, linear television was the tried-and-true channel for mass-market reach. But its relevance faded as audiences abandoned their pay TV packages in search of new content and more affordable services.” As a prediction, they expect “advertisers to move more aggressively into streaming as they look for new ways to reach desired audiences.”
This general prediction trend is consistent with my own: last week I published a forecast for 19% growth in digital TV advertising (primarily CTV) during 2024, meaningfully up from a 5% growth forecast for all of 2023. Although this is skewed by political advertising at the local level, there is some acceleration nationally, too, where I expect growth to rise from 11% in 2023 to 15% in 2024. One big reason will be Amazon’s pending introduction of advertising to Prime Video, which should, at least initially, significantly expand the amount of available streaming advertising inventory in the market for overall TV advertising. By contrast, the overall TV market (local and national combined, and including CTV) will decline by around 3% excluding political advertising.
Historically, I have observed that there is a strong relationship between a seller’s share of gross ratings points (GRPs) in the market and the share of ad spend they receive, and separately have observed that the market for streaming or connected TV advertising is mostly interchangeable in the eyes of most large advertisers. Separately, the growing – if ultimately limited - share of Netflix and Disney+ subscribers who will access those services on an ad-supported basis will further add to the share of streaming GRPs in 2024.
However, because linear TV will continue to represent the vast majority of advertising GRPs - as linear TV is almost entirely ad-supported and as ad loads are significantly heavier when compared with streaming – there is a separate question around how an advertiser should allocate spending between linear TV and connected TV.
I would start by arguing that most advertisers who use TV are doing so because they want to reach essentially all consumers, or as many as possible and drive or reinforce awareness around whatever their current campaign is. Relatively little spending from advertisers directed towards TV is used to target narrow audiences.* If the hundreds of large advertisers who dominate TV can accomplish “performance” with their campaigns (however they choose to define it) that seems to remain a secondary goal, albeit one with growing importance.
To the extent reach remains the primary goal of a TV campaign and performance is secondary, advertisers with these objectives will lay down their initial budgets with the broadest reaching suppliers first, as doing the opposite would lead to unintended duplication so long as most linear TV ad inventory is not sold in an addressable or one-to-one manner. This means that in the near-term, owners of broadcast networks and any sales efforts which bundle this broad reaching inventory will get the first look at advertisers’ proverbial wallets.
Presuming this notion holds, what matters most about connected TV and streaming ad inventory is how much of its reach is unique to the other inventory an advertiser buys.
Put differently, if all of the available GRPs on CTV were with consumers who were already reached on linear TV – free broadcast TV in particular, which cord-cutters will still be able to access if they use modern-day “rabbit ears” - then the value of streaming ad inventory may be relatively low. On the other hand, if a seller is able to credibly demonstrate how they are reaching audiences who cannot otherwise be reached by linear TV, the spending may be particularly valuable.
*It’s worth pointing out that I believe sellers of streaming ad inventory can generate incremental revenue from marketers who are primarily focused on “performance,” over brand, and streaming may capture an outsized share of spending from this group of advertisers given the relative ease with which detailed data may be applied to these buys. However, at the same time, it’s important to consider that this activity may not represent much more of the overall TV advertising industry than traditional direct response advertising ever did.