On TV & Video” is a column exploring opportunities and challenges in advanced TV and video.

Today’s column is written by Gijsbert Pols, PhD, director of connected TV and new channels at Adjust

With a bear market upon us and the chance of a recession as high as 44%, marketers are bracing for budget cuts. Typically, marketers pull back on branding when money gets tight, retreating to superficial, measurable safe havens like search and social.

But one channel that is likely to endure the recession is CTV. In fact, even if CTV’s popularity dips in the short term, there are several reasons to believe it will emerge stronger on the other side of a possible recession.  

Already, a shift from linear is driving sustainable CTV audience growth. CTV is also becoming a performance channel thanks to better measurement. And consumers are flocking to ad-driven streaming services instead of subscription-based ones. Plus, the increased supply of ad-supported CTV inventory is likely to decrease CPMs. All of these factors will sustain, and could even accelerate, the growth of CTV advertising.

Linear converts are fueling sustainable CTV growth

If we divide growing CTV and OTT viewership into cord-nevers and cord-cutters, we see clearly why CTV’s growth is likely to endure the downturn. Cord-nevers will keep aging into the TV buying demographic as they move out and wean off their parents’ subscriptions. Meanwhile, cord-cutters will be incentivized by the downturn to pay only for the programming they want. Both trends make CTV recession-proof.

Plus, inflation and subscription fatigue are leading consumers to abandon streaming video on demand (SVOD) and instead embrace ad-supported options such as advertising video on demand (AVOD) and free ad-supported television (FAST). While SVOD services like Netflix have seen their market penetration drop 1.5% from Q2 2021 to Q2 2022, AVOD and FAST have gained 24.3% and 92.5% in market share, respectively. SVOD still dominates the market, but the balance is shifting quickly.

CTV is becoming a performance channel

Increasingly, better measurement enables advertisers to manage CTV as a performance channel.

While CTV has an advantage over linear in that it is digital and is measured more easily than traditional TV, it cannot simply be treated like other digital channels. Search and social, for example, tend to be a shopper’s last stop before conversion, so they’re ideal for last-touch attribution. CTV has a big influence on conversions, but it tends to assist those down-funnel channels at driving conversions rather than precipitating conversions itself.

Marketers that want to measure CTV advertising’s impact effectively need to create models that account for the channel’s ability to assist bottom-of-funnel tactics. For example, many consumers see a CTV ad, look up a product and make a purchase on their mobile phones. By assessing the correlation between CTV ad exposure and mobile purchases, marketers will better be able to evaluate the ROI of CTV. Shoppable ads on CTV already exemplify this dynamic between mobile phones and TV, making TV a direct-response performance channel.

CPMs are likely to get cheaper on CTV

The third factor driving CTV’s recession-proof growth is that the supply of ad-supported CTV inventory is growing fast. This is not only due to audiences canceling subscriptions and shifting to AVOD and FAST, but also because subscriptions have proven to be insufficient in funding the race for original content. 

This race is not over, as original content is the only way to tie consumers to an ever-growing offering of streaming services. Even Netflix, which always vocally denied it would allow advertising on its premises, is starting to experiment with ad-based tiers. Ad-supported CTV inventory will keep increasing. That means CTV advertisers will enjoy lower CPMs and see higher ROI, spurring them to double down.

During recessions, marketers are likely to lay off the hot new thing and return to basics. But while a downturn would likely undermine long-term marketing moonshots like investments in metaverse technologies, it is unlikely to undermine CTV. Shifting audiences, stronger measurement and cheaper costs are to thank for that.

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