How does OTT's ROI on ads compare to linear TV?

Dive Brief:

Over-the-top (OTT) typically drives higher ROI than traditional linear TV while addressable channels spur lower ROI, although there are examples where addressable can work well for specialty businesses, according to Analytic Partners' new "Staying Ahead of Emerging Media" report, which was shared with Marketing Dive. Programmatic TV's ROI is on par with linear's.
Addressable TV, which refers to digital buys for impressions on a specific cable set top box, is a good channel for advertisers to reduce media waste, the research reveals. Due to the digital nature of the channel, advertisers can purchase ads based on deeper customer data profiles than traditional TV buys that rely on targeting a wider audience. However, addressable TV has consistently high CPMs.
OTT, which includes channels such as Hulu, Amazon Prime and Netflix, is a consistently efficient ad channel that can broaden reach and reinforce a brand's messaging. Programmatic TV is less responsive than addressable TV, but lower costs typically mean higher efficiencies. The research is part of Analytic Partners' ongoing ROI Genome Report, which has measured hundreds of billions of marketing spend examples across more than 45 countries since 2000.

Dive Insight:

It's no secret that viewing habits for the kind of programming that was once limited to linear TV are changing as options of channels and services offering this content has proliferated, a trend that continues to pick up as new streaming services arrive, including Disney+ and Apple TV+. While many of these new options are still emerging, the increasingly fragmented landscape makes it difficult for marketers to know where to invest their media dollars, a question the Analytic Partners research tries to address.

One key takeaway from the research is that linear TV still has the greatest reach of all media channels and remains a core foundation for building most media plans. However, while linear remains important, the report notes that as emerging forms of TV viewing continue to grow, savvy advertisers will try to stay in front of new technologies and invest in these impressions to explore how best to reach the ballooning number of cord-cutters.

Addressable TV, for instance, could be worth the investment despite the high CPMs. Its reach jumped 27% between 2016 and 2018, according to a Video Advertising Bureau report cited in Adweek. The study estimates spending in this channel will be more than $3 billion in 2020, up 343% from 2016. A Sky TV report found that addressable TV cuts channel switching 48% and boosts ad recall 49%, The Drum reported.

While programmatic is less responsive than addressable TV, its efficiency is likely behind its growth. Programmatic TV ad spend is forecast to swell 58.4% this year and 70.9% in 2020 for a total of $4.73 billion, according to eMarketer.

OTT's efficiency, which Analytic Partners points to in the report, is one reason for the channel's enormous success. OTT video ad spending is growing faster than any channel and is forecast to reach $4 billion this year and $5 billion next year, per a report from IPG Mediabrands Magna.