It’s probably safe to call 2022 the Year of Connected TV, especially on the advertising side. Brands and agencies are shifting billions of dollars CTV-ward, and away from legacy broadcast and cable outlets. 

You really can’t buy a TV these days that’s not smart/connected, with a built-in operating system from someone such as Samsung or Google or Amazon, opening up a universe of streaming options. And if you don’t like that OS, or still have an older, dumb screen, you can join the video party with a Roku stick, Amazon Fire TV dongle or Apple TV puck. 

CTV is in turn opening vistas of impactful, tightly targeted advertising that just isn’t possible with legacy TV.  Brands love that. But in the rush to CTV, we may have overlooked some nuance. 

This past week, Needham & Company senior research analyst Laura Martin dropped a short note gently warning clients that maybe Connected TVs aren’t quite all that, at least not quite yet. Really, she suggests, brands and investors need a more complex understanding of what CTV is, and what it really can be. 

“From an inbox filled with stats related to the 30 stocks we cover, occasionally we see a data point that haunts us,” wrote Martin. “We can't shake the feeling that, if that data point turns out to be important, it undermines important economic assumptions we (and often Wall Street) hold as true.”

According to August numbers from services provider Amagi, “nearly 80% of CTV viewing is shared viewing,” Martin noted. Two, three or even more people are watching connected TVs together all but a fifth of the time. 

Okay, so what? 

We’ve been gathering together to watch I Love Lucy or The Wonderful World of Disney or the NFL or Friends or Game of Thrones for decades. You media philosophers will suggest we’ve been doing it since long before Plato noticed firelight flickering on cave walls. With those giant connected TVs festooning the walls of millions of homes these days, tens of millions of us are happily watching the digital hearth together. 

Except, Martin points out, that perfectly normal behavior diminishes the precision targeting promised by streaming services, platforms, and marketers. Connected TVs in fact aren’t quite as precise as the mobile phones, tablets and PCs that have yielded $55 billion a year in digital advertising. That has (at least) three potential implications: 

* Shared viewing means some targeting advertising is “wasted” on those who may not care about the ad. Should marketers pay less, imposing a “shared viewing discount” of some sort? In particular, what does it mean for Netflix, which launched its ad-supported tier Thursday at reportedly very high rates? Those sky-high CPMs might have been difficult to defend regardless, but when folks are watching Bridgerton or Stranger Things together, what are advertisers actually getting what they’re paying for? Double actually, what are they paying for? 

* CTV’s bigger screens make for more impactful shows and ads, certainly when compared to a dinky iPhone screen. But if shared viewing makes for less valuable viewing, will advertisers seeking that laser-guided precision slow their shift from mobile, to ensure they’re hitting just the right viewers as efficiently as possible? With the economy slowing and marketing budgets tightening, efficient spending will matter more.

* Ad frequency is a challenge that CTV services and platforms are supposed to manage. But lots of shared viewing could complicated “frequency capping” strategies, and affect the viewer experience, Martin suggested. 

It’s no time to panic, of course, even as the ad business, and the broader economy, tightens up. What may result, however, is a more complex and nuanced understanding of what CTV can do, and perhaps help advertisers avoid disappointment from using it for the wrong things. 

For instance, not every brand needs to target their message down to a single individual. 

If you’re Pizza Hut or McDonald’s, your target audience could be “everyone with a stomach,” whether they’re 8 or 80. That kind of advertiser cares more about appetites than demographics.

Similarly, other brands may care more about where people are, rather than who they are. The geo-targeting possible with CTV is a gift that keeps giving. And still other advertisers really only care about reaching the household, rather than any one member. 

Again, advertisers must learn to use connected TV the right way, and not confuse it with broadcast, cable, or mobile. It’s best understood as a hybrid of all that came before it, with new possibilities but also some limitations. In some situations, other alternatives might actually be better. 

Certainly, more nuance is needed. Roku took a beating in the markets last week after its quarterly earnings and future guidance proved decidedly underwhelming. 

Roku made its name selling cheap, flexible hardware to connect all those dumb TVs to the Interwebz, which led 65 million households to install its products. These days, most of Roku’s revenue comes from the ads that run on its streaming service and platform. 

That makes Roku a hybrid, but also a harbinger for what’s coming to the broader streaming sector. And that’s a little nervous making. 

“The first thing companies do in the face of such uncertainty is cancel their ad budgets,” said Roku CEO Anthony Wood during the earnings call. “Big advertisers that we traditionally get spend from are not spending this quarter. They aren’t spending with anyone. It’s not just they’re not spending with us.”

If Roku’s rotten numbers indeed show where the industry is headed, CTV’s boom may be coming to end. 

Add in Laura Martin’s note, and the continuing lack of standardization in areas such as metrics, and the coming months will be more complex. What’s going to result? Most likely, 2023 may not known as the Next Year of Connected TV as much as The Year Marketers Start to Figure It Out. That’s still progress, however unsexy it might be.

Two prominent media financial analysts, in separate presentations to two different groups, proclaimed their enthusiasm for broadcasting, cable and traditional media while acknowledging the growth of digital media in a revamped "revenue mix." 

Both analysts said they believe the frenzy over digital delivery is slowing.

"Big advertisers are going back to traditional media because they recognize that their digital advertising is not working out," Marci Ryvicker, managing director and senior equity analyst at Wells Fargo Securities, said at a monthly luncheon of the Media Institute on April 3.

Later that day, Laura Martin of Needham & Co. said, "Digital has sullied its brands" by underperforming. In a presentation to the Women in Cable Telecommunications D.C. chapter, Martin cited the extension of traditional TV brands through TV Everywhere and direct-to-consumer services such as CBS All Access as models for "the resurgence of TV."

Both analysts envision a continuing wave of media mergers, although they offered few predictions about specific deals.

"Everybody's a buyer" in the volatile broadcasting sector, Ryvicker said. She acknowledged the regulatory caps on homes reached may affect short-term growth for the largest companies.

She was bullish on Sinclair because "scale is important."

"They've under-promised and over-delivered," Ryvicker said.

On other topics, Ryvicker cited the recent collaboration of Viacom, Time Warner (Turner) and Fox Networks Group  to form "OpenAP," which will help advertisers target specific audiences. She characterized such moves as valuable. 

Ryvicker also predicted  that 2018 political advertising "will go up" thanks to the volatile campaign situation, and she expects that "cable news channels will continue to have big ratings through this administration."

She singled out Disney's performance on several levels and added that she thinks "NBC is trying to do what Disney did" in focusing on specific audience segments for growth.

Ryvicker described the impact of streaming video bundles as creating "a lot of nervousness and guessing" among investors. She expects that only three aggregators will survive on a broad scale, citing Hulu (largely because of its media ownership), Apple (even though it has no product yet) and Amazon.  

In response to a question, she said that she doesn't expect Apple to buy Disney because it doesn't fit with Apple's agenda to "get a device into every home." But she said that it would be "more dangerous if Apple bought Netflix," which is so well established; she did not elaborate.

"We don't have enough data to know what any of this means," Ryvicker confessed.

Martin, senior analyst, Entertainment & Internet, at Needham & Co. and CEO of Capital Knowledge LLC, cited efforts by Google and Facebook to pivot into video delivery companies, but doubted that they have the ability to reach mass video audiences.  

She said that many of the digital providers (not including Netflix) have one or two million customers compared to the 90 million pay TV users nationwide.

"The feel very 'niche-y' to me," Martin said. 

She acknowledged that customers "want rebundling," and pointed to deals such as the one between Showtime and Netflix as a possible harbinger of future alliances.  

Martin also emphasized the value of live viewing -- including sports and other content. She cited the ongoing "revenue mix shift" as advertising and subscriber fees are adapted to the evolving role of digital and mobile video consumption.

Summing up her outlook on cable, Ryvicker drew a knowing laugh from the Media Institute audience when she reminded it to "disengage the company and its stock."

"People hate Comcast but love Comcast stock," Ryvicker said.