Local over-the-top ad spending is expected to exceed $2 billion in 2022, growing at an annual compounded rate of 43% since 2020, according to a new report from BIA Advisory Services.

The huge increase makes OTT the fastest-growing local ad platform, according to the report, titled OTT–The Rising Star in Local Ad Spending: Regional and Business Vertical Trends.

“The increasing volume of OTT impressions has elevated this channel from a fill-in audience reach extension play targeting audience segments hard to reach in linear TV, to a full-fledged marketing channel capable of delivering ad impressions at scale across demographics and market geographies,” the report said. “At this point, it’s fair to make the claim that the sheer number of impressions makes local OTT competitive with, but also complementary to, both linear TV and digital advertising.

Also: Advanced Advertising: Local OTT in Growth Mode

BIA defines OTT ad spend as comprising ad spending targeting local viewers of long form premium video content delivered via the internet. It notes that OTT gives marketers some of the best features of traditional and digital media. 

"First, as with linear TV, OTT buyers can select ad inventory in premium video and brand safe environments with data-driven audience targeting joining first and third-party data in both direct and programmatic trading," the report said. “Second, digital campaign management tools for optimization and attribution further help marketers create, manage, and evaluate campaigns to achieve both branding and activation KPIs.”

BIA forecasts that ad spending across all local advertising media platforms will increase to $167 billion in 2022 from $138 billion in 2020, a 10% compounded annual growth rate. It notes that spending is shifting from traditional media to digital media, expected to capture 47.5% of spending in 2022, up from 41.7% in 2020. Behind OTT in terms of growth are digital radio, mobile, magazines and PC and laptop ads. 

The top advertiser categories in terms of OTT spending in 2022 are general services at $337.2 million, automotive at $273.2 million, restaurants at $202 million, health at $202.8 million and finance and insurance at $182 million.

BIA also expects political campaigns to spend more on OTT. 

“The sheer growth and volume of OTT impressions has taken the local OTT channel from a fill-in audience reach extension play to a full-fledged marketing channel,” said Rick Ducey, BIA's Managing Director and the author of the report.  “Now, OTT is recognized as a channel capable of delivering local ad impressions at scale across demographics and market geographies, making it a highly competitive channel across all media.”

The report was sponsored by Vevo, the music video service.

“The data and insights that BIA provides in the report show the efficacy of local OTT as a competitive and powerful marketing channel,” said Liz Baxter, director of local advertising at Vevo. “As OTT continues to show itself as a win-win for advertisers, brands and agencies that want to target local audiences have a valuable new media channel to add to their advertising mix.” ■

Over-the-top advertising has become a surprisingly important business for companies that have been stockpiling local television stations.

Early in his remarks during Tegna's first-quarter earnings call about its success as a “pure-play broadcasting company,” CEO Dave Lougee gushed about the growth of Premion.

“Premion, our first-to-market over-the-top advertising platform, has continued to evolve and expand to best serve the needs of regional and local advertisers,” Lougee said. He said Tegna was increasing its 2021 outlook for Premion, forecasting a 45% to 50% increase in revenue over 2020.

Also Read: How Gamut Got OTT Results

OTT advertising is more than a growing source of revenue for station groups following a COVID-caused recession from which the local ad market is still recovering. Streaming revenue is letting broadcasters, including Cox Media Group, Sinclair Broadcast Group and the NBC- and Fox-owned and operated stations, claim a foothold in the technology field and create advanced advertising products for clients enamored with digital and social media.

A Way to Offer Advanced TV Ads

“OTT is a way to get to the future,” said Steve Pruett, executive chairman of Cox Media Group, whose OTT advertising company is Gamut. “It’s a way to move advertisers and our viewers into advanced TV.”

Even more opportunities for advanced advertising will be available as local stations transition to the ATSC 3.0 NextGen TV format. 

Premion and Gamut offer local clients the advantages of digital advertising, such as better targeting by geography, demographics or purchase behavior, which are difficult for broadcasters using current technology. Adding OTT and CTV advertising to a campaign can also help advertisers grow reach, a crucial aspect for marketers.

Locally targeted OTT ad spending will total $1.13 billion in 2021, per BIA Advisory Services estimates, up 19%. For 2022, BIA has forecasted another 49% jump to $1.64 billion.

On top of that, getting into the over-the-top space transforms broadcasters from old media Luddites into high-tech whizzes, which makes them more attractive to Wall Street and their investors.

Daniel Kurnos, analyst at the Benchmark Co., called Premion a big part of Tegna’s future, its OTT strategy and its ad-stack development.

“It’s also a potentially growing piece of Tegna’s own valuation,” Kurnos said. “Remember that Premion is currently all local inventory, though, so it’s differentiated. I would also argue that they did it first, so they have a nice first-mover advantage, and Gray has invested in the platform as well, which gives them nearly full-country coverage, especially once the Meredith transaction closes.” (Gray agreed to purchase Meredith’s 17 local TV stations in June.)

Tegna agreed to sell a stake in Premion to Gray Television in February 2020.

Gray president and co-CEO Pat LaPlatney said the broadcaster was looking to form a commercial relationship with Premion when it decided to invest instead.

“There’s significant demand for digital video and in doing our homework, we decided Premion was the best,” LaPlatney said. 

Unlike other tech or digital businesses Gray could have invested in, Premion is generating real money.

“The business of selling digital video impressions is really, really strong,” LaPlatney said. “I would guess that it’s far and away the strongest piece of the media ecosystem right now. And so we’re happy to have a very good product set in that world and happy to have some equity in a company that we feel is the best.”

Wells Fargo media analyst Steven Cahall in May noted that Premion “supercharges” Tegna’s ad revenue growth. 

Cahall estimated Premion would have sales of $215 million for 2021, including more than $50 million in the second quarter. That would be about 15% of the $1.4 billion in advertising and marketing services revenue he expects Premion to generate this year.

“We’re in a similar growth trajectory here at Gamut,” said Soo Jin Oh, president at Gamut. She expects to see more growth because many digital advertisers are starting to shift dollars into OTT.  

Tom Cox has been president of Premion since early 2020, but he was one of the business development executives at Tegna when Premion was created.

“We have a variety of strategic initiatives we look at on a regular basis, and identified that dollars were moving from a variety of different buckets into OTT and streaming advertising, and realized we had some pretty unique assets given the strength of our local stations,” Cox recalled. “We started the business in 2016 and never looked back.”

Cox said the pandemic was a factor in Premion’s growth, accelerating consumers’ move to streaming by three to five years. “I believe, as TV viewers continue to suffer subscription fatigue and option overload, we should anticipate the growth in AVOD [ad-supported VOD] to continue,” he said.

Advertisers Like It

Over-the-top TV and connected TV are popular with advertisers because they combine the targeting and performance metrics available with digital advertising with the lean-back experience for viewers. Advertisers also can reach viewers who have cut the cord or simply don’t watch traditional TV.

With its head start, Premion was able to develop scale, which it has used to invest in the business.

CTV advertising commands a high price, and that has attracted fraud. Premion offers security by working directly with inventory providers rather than working through open exchanges. Among its inventory partners are Discovery, Fox and A+E Networks. 

“We focused on creating an inventory product that looks very similar to a replacement for the traditional cable model,” Cox said. Premion’s product was a good fit for Tegna because, like TV advertising, the messages show up “on the same piece of glass, in the same type of programming. It’s just delivered differently.”

Between the Tegna stations and the Gray stations, Premion has “feet on the street” in markets representing about 75% of U.S. households, Cox said.

Premion has developed a set of fairly robust sales rules designed to separate the local clients pursued by Tegna and Gray station ad-sales teams from national clients looking to activate locally, targeted by Premion’s sales force. 

“It took us a while to figure out how best to codify those roles,” Cox said. “But now that they are in place, it works seamlessly across the groups and the level of sales-channel conflict that we experience is considerably less than even a year and a half ago.”

Cox said Premion’s business is built around providing the best inventory, the best customer experience, by integrating with agency and client buying systems, and the best results. Those results are being quantified through deals with a number of data and analytics providers.

Premion recently signed up with TVSquared, which helps provide crossplatform, closed-loop measurement and attribution for local linear and OTT campaigns.

Tegna Attribution is working with IHS Markit to employ Polk data to identify the most valuable targets for auto advertising and connect Tegna and Premion campaign performance to dealer sales.

Tegna Attribution also has an arrangement with Arrivalist, a travel-and-tourism intelligence company, to help measure how many people arrive at various destinations, where they came from and how long they stayed.

While it works with the TV stations, Cox said, “the Premion business is focused on OTT and CTV. There are a number of other competitors in the space that offer a panoply of digital marketing services. That’s not what Premion is. Premion is entirely focused on OTT and CTV and I think that singular focus allows us to really execute and drive that business.”

Competition Will Come

But with OTT advertising growing so fast, competition is inevitable.

Apollo Management Group in April agreed to acquire Verizon Media, whose assets include both digital content and ad tech. There will be ways Verizon Media will be able to work with Cox Media Group and Gamut.

CMG’s Pruett couldn’t comment on what synergies might exist between Verizon Media and CMG, because the deal hasn’t yet cleared regulatory review and closed. “What I can tell you is that Apollo strongly encourages their portfolio companies to find synergies and to work together,” he said. “So you know that is an Apollo desire.” 

Gamut provided a couple of case studies of how its OTT campaigns work in local markets.

CEO Soo Jin Oh said “measurement is a sweet spot” at Gamut. “Any client that buys with us gets off-the-shelf measurement, whether it’s incrementality or things like store visitation rates or purchases,” she said. “OTT advertisers are looking for more measurement that helps them understand the return on investment.”

Also Read: Premion Shows Station Groups Way to Over-The-Top Revenue

A pet-supply advertiser wanted to extend reach beyond linear TV. Gamut’s campaign targeted pet owners ages 25-54 in a local market and was optimized to reach unique  viewers without oversaturating the audience. The result was that 69% of Gamut’s campaign was seen by consumers who can’t be reached with linear ads, according to data coming from Gamut’s partnership with iSpot. 

Another campaign for a retailer aimed to increase web traffic among adults 25-54. Gamut used premium, brand-safe inventory and engaged CubeIQ and Comscore to measure the results. The campaign increased web traffic by 258%. Consumers were 12.7% less likely to visit competitors’ websites directly and 20.3% more likely to search for items the retailer sold.

Cox Media Group named Soo Jin Oh as president of Gamut, its over-the-top advertising company.

Oh, who has been co-chief operating officer of Gamut for the past eight months, will oversee the company’s day-to-day business and drive innovation and engagement. Rachel Williamson, who was named president of Gamut in 2015 left in January 2020. 

Read Also: Apollo's Gamut to Use iSpot Unified Measurement

“For the past four years, Soo Jin has been a driving force at Gamut,” said Steve Pruett, executive chairman, CMG. “As a passionate and respected visionary, she brings a level of unmatched energy, diligence and entrepreneurial leadership to every role she takes on. She has a proven track record of fortifying organizational capabilities that delivers enhanced revenues and customer value, and I am thrilled that we can, once again, tap internal talent for such a critical leadership position.”

Read Also: Wilson Named to Head Cox Media Ad Businesses

Oh started her career at Google and joined Gamut in 2017. She has helped build Gamut from its beginnings as a start up in 2014 to a unique business providing local OTT execution across diversified revenue streams of managed and self-serve business.

“I am excited to take the helm at Gamut, the leading local OTT company with the best in class product and the most talented team in the industry,” said Oh. “Since Gamut’s inception, our team has rallied around always doing what’s right by each other and our customers with an unwavering commitment to excellent service and performance. We lead with our product and win with our people and I look forward to working with our team to spearhead more innovation and growth in this ever-evolving world of OTT.”

Verizon Media said it has launched a new Cross-Screen Planner as part of its demand-side platform to help marketers reach viewers via both traditional and internet- connected TVs.

The Cross-Screen Planner uses Nielsen Smart TV Viewership data to identify the content viewers are exposed to and enables simultaneous forecasts across multiple screens and formats.

"CTV’s explosive growth is providing advertisers an opportunity to reach and engage with audiences in new and exciting ways,” said Ivan Markman, chief business officer at Verizon Media. “As such, we’re also seeing a greater convergence of traditional and emerging channels, with advertisers shifting spend to these ‘smarter’ channels. Verizon Media’s DSP is the industry’s only omnichannel platform and our new Cross-Screen Planner speaks to our commitment in giving advertising partners’ transparency and robust campaign performance insights.”

Verizon Media said the planner can help improve the effectiveness of campaigns by avoiding overexposing customers to the same ad on multiple platforms, or can better echo messaging to the same audience in different channels.

“Advertisers understand strong cross-platform strategies are critical to their successes in a connected world. With the integration of Nielsen’s Smart TV Viewership data into Verizon Media’s identity graph, Verizon Media DSP clients can now access a single view that enables consolidated omnichannel planning and unified reporting,” says Matt Reid, senior VP, product leadership, at Nielsen.

The features of the Cross-Screen Planner include:

• Familiar linear TV buying parameters , such as age, gender, GRP, Network Selection, DMA, and day part

• Audience comparative overlap analysis for extending audience reach and reducing eCPMs across channels

• PDF export for ease of distribution and report sharing

• End-to-end planning and measurement for CTV and digital executions

Are we about to see a significant migration of advertising dollars to OTT platforms?

Hulu ad sales chief Peter Naylor told AdWeek that he’s recently seen a “massive surge” from advertisers for research requests.

“In the sales business, we call that a signal to buy,” Naylor told the venerable ad trade in a Q&A. “They’re asking because they intend to move the money, and they need supporting research that shows it’s a good idea. They just need some hand-holding and some proof.”

According to global ad conglomerate Magna, OTT advertising generated around $2 billion in revenue in 2018—a tiny portion of a U.S. advertising market that took in about $207 billion last year.

Related: 23% of Subscribers Would Drop if Netflix Had Ads

Naylor believes change will come to that paradigm based on new OTT ad formats. In his wide-ranging AdWeek discussion, he cited a Hulu beta in which pauses in on-demand programming include ads.

“For the pause ads, we have two beta advertisers from some of the worlds’ biggest advertisers: Coca-Cola and P&G. For Coca-Cola, it’s the master brand Coke itself,” he said. “When you hit pause, imagine copy that says, ‘For a pause that refreshes.’ It’s contextually relevant. Then there’s Charmin, which is the brand from P&G, and when you hit pause it says, ‘Enjoy the go’ with the Charmin bear. It’s contextually cute and interesting.”

Overall, Naylor said that the quality of OTT content, improvements in bandwidth and improved delivery hardware, will drive OTT ad growth.

“The other thing that makes me so optimistic about the future of OTT is just that the most prestigious television content is happening in this space, as evidenced by the caliber or people who are creating content here,” he said. “The content is awesome. And the promise of acceleration is huge with the bandwidth explosion everyone anticipates with 5G. Plus, the hardware itself, when you see all these TV manufacturers getting more innovative, better and smarter. Those three things—content, bandwidth and hardware—means that the future of OTT is just going to be big.”