All or nothing? Challenges and opportunities ahead for Europe’s CTV ecosystem

By Jon Watts, Project Director: The European CTV Initiative

Launched in November 2020, the European Connected TV Initiative (ECTVI) is currently focused on exploring the opportunities presented by the growth and development of the connected TV advertising ecosystem in five major European markets: the UK, France, Germany, Italy and Holland. Working with Google, Roku, Fincons Group and IPONWEB and supported by our media partner The Drum, the ECTVI project team is facilitating a wide-ranging dialogue with industry participants and major trade bodies across the market, to assess the opportunities, explore potential barriers, and identify the practical steps that the industry could take to unlock the full potential of the CTV ecosystem in Europe.

Although the new initiative is in its early stages, we have already undertaken an extensive programme of research and analysis, engaging with a wide range of advertisers, agencies, broadcasters, pay-TV platforms, Smart TV manufacturers, and technology, data and measurement providers, to investigate the state of the market and to explores views and perspective on the opportunities and challenges ahead.

Our research is uncovering evidence of an industry in transition, with wide variations, country by country, and significant uncertainties about the way forwards.

The 2020s – TV’s connected decade?

In many respects, connected TVs (CTVs) are the locus for many of the most important debates about the future of media – debates about media measurement, planning and buying across TV and digital media, about the responsible use of data to support targeted advertising, about identity resolution, the role of programmatic buying and the future of the TV trading model, and about the relationships between TV platforms and media owners.

CTV platforms are scaling rapidly, in the US and in most major European TV markets, with around 51m TV sets sold in Europe in 2019 and around 44m in North America (Source: GfK). Almost all of these TVs offer some kind of connectivity, providing access not just to broadcast TV channels but also to a wide range of streaming services. As of July 2020, around 77% of US TV households (around 92.9m households) had an internet-connected TV, either via a smart TV or an internet-connected device, like games consoles or streaming media devices.

These big sales numbers matter, because it means that smart TV platforms are able to scale quickly, creating a large mass-market distribution platform for streaming services and supporting the rapid roll out of new advertising offerings and capabilities into the TV market. The leading smart TV platform providers in the US market – Samsung, Roku, LG, Panasonic, Sony, and Vizio  – are generally in as many or more households than the largest pay-TV providers, although there is clearly a substantial overlap between smart TV and pay-TV households, and many smart TVs are being used as second or third sets, in larger households.

The mass market penetration of smart TVs has played a critical role in supporting the take-up of streaming services, in the US and Europe – including broadcaster video on demand (BVOD) services, YouTube, the SVOD players, and the FASTs (Free Ad-Supported TV services). In particular, the leading international SVODs (Netflix, Amazon Prime, Disney+) have leveraged their deep pockets and global (or near global) footprints to pay for prominent positions on smart TV interfaces, as well as investing heavily to promote selected  titles, resulting in rapid growth, outpacing most domestic streaming services at present.

The foundations have been laid for a decade of change and disruption ahead. However, despite the rapid growth of CTVs on both continents, the US and European markets are developing in very different directions.

CTV developments in the US

In the US, the rapid growth of CTVs has supported the development of a dynamic, competitive CTV advertising ecosystem – but the development of this ecosystem has been supported by a number of other important characteristics, unique to the US market. The US is one of the largest, wealthiest and broadly contiguous TV markets in the world, allowing CTV platform operators and streaming services to scale quickly – unlike Europe, which consists of multiple countries, each with its own distinctive TV market, language and culture. Scaling fast, across Europe, is challenging, and requires very high levels of investment, in content, marketing and distribution.

The large, addressable base of CTVs has allowed numerous FASTs, as well as other streaming services, to grow rapidly, with services like Pluto TV, Xumo, Philo, and Tubi available to millions of US TV viewers, alongside the CTV owned-and-operated channels. FAST content offerings vary widely, but most are licensing programmes, films, feeds and channels from studios and distributors, capitalising on the unique scale and quality of the US’s secondary market for film and TV content.

Another unique feature of the US market is the over-supply of TV inventory, often at very low prices, and the strong market tradition of granting inventory rights to TV platform operators, now including MVPDs, CTV manufacturers and streaming media platforms. As a result, a wide range of US businesses have access to TV inventory, coupled with the means and economic incentives to invest in advanced advertising.

These unique characteristics of the US connected TV market are stimulating the development of innovative new offerings and capabilities in a range of areas. As well as being a mass-market distribution platform for TV streaming services, CTVs are:

1. A large-scale source of viewing data, providing very granular insights into TV and video consumption and ad exposures, and supporting new forms of targeting and attribution. CTV data is being widely licensed across the market, supporting a diverse and innovative ecosystem of measurement, identity and attribution provider.
2. A platform for addressable, targeted TV and video advertising, with targeted ads inserted either server-side and delivered in streaming services, or client side, uploaded via broadband and stored on the CTV, using specifications developed by Project OAR (Open, Addressable, Ready). CTV data allows adverts to be targeted at certain kinds of viewer – for example, heavy Netflix viewers or light sports viewers – and can also be used to develop custom audience segments for targeting purposes, using various different datasets.
3. Stimulating the development of a new programmatic ecosystem for the TV market. Many of the newer TV streaming services, the FASTs, are selling their inventory programmatically through DSPs, and TV platform operators like Roku and Samsung are also building out their own DSPs, capitalising on growing volumes of CTV video inventory. Major media conglomerates like NBCUniversal and ViacomCBS are integrating CTV inventory into their own planning and buying tools, One Platform and EyeQ, respectively, and are also acquiring FASTs, in part because of their strong presence on CTV platforms – Comcast acquired Xumo in February 2020, ViacomCBS bought Pluto TV in January 2019.
4. A platform for advertising innovation and experimentation, supporting the development of new ad formats (clickable ads, overlays, shoppable ads, micro-sites) and even randomised controlled experiments, comparing business outcomes across exposed and control groups to assess the effectiveness of TV ad campaigns.

These are important, exciting developments, combining the best of digital with the enduring strengths of TV as an advertising medium. It’s unsurprising that many US executives believe that the 2020s will be TV’s connected decade - a period of change and disruption, but also one of tremendous opportunity.

The situation in Europe

Perhaps unsurprisingly, the European CTV ecosystem is very different, and varies widely, territory by territory. Clearly, Europe’s national TV markets are individually significantly smaller than the US market, with widely varying structures, dynamics, cultures and languages. The CTV ecosystem is developing across Europe, but it is fragmented, by country and by platform or manufacturer, with limited scale in many European geographies. Moreover, high levels of pay-TV penetration in many European markets tends to limit the extent to which CTV’s are being used, further limiting the scale of the CTV opportunity or, at least, making it more difficult to address. Standards like HbbTV are clearly helpful, but major broadcasters in Italy and Germany note that the HbbTV landscape itself is fragmented, with different implementations.

Equally importantly, the supply of premium video inventory, outside of the major TV sales houses, is very limited in most European markets. Europe has its own FASTs, of course, but these tend to be much smaller than their US counterparts, in part because it is hard to scale up across a wide range of different TV markets, given different languages and content preferences. Moreover, the supply of TV content available for licensing in markets like France, Germany and Italy is far smaller than in the US market. Europe’s major commercial broadcasters remain in a relatively strong position and have retained a far larger share of the audience, compared to their US broadcasting peers. As a result, DSPs in Europe currently have far less access to premium video inventory than their US colleagues.

Across Europe, there is also far less of a tradition of networks and channels granting inventory rights to platform operators, and most retain a tight control of their inventory. Most commercial TV sales houses in Europe sell out of the majority of their inventory, and there is far less cheap TV inventory available. Europe’s major broadcasters are investing in programmatic, but most are doing so via their own private marketplaces, and many are sceptical about the value of third-party DSPs and the programmatic supply chain.

Europe does have its own CTV advertising standards, in the form of HbbTV, which supports linear addressable advertising on compatible TV sets. HbbTV is part of DVB broadcasting standard, and provides opportunities to combine broadcast and broadband services. Major TV groups like RTL in Germany and Mediaset in Italy are offering targeted advertising via HbbTV, but the current specification does not support frame-accurate replacement of individual TV ads in a break, which many executives believe limit the attractiveness of the opportunity.

The HbbTV Association has released a new targeted advertising standard, HbbTV TA, but implementing the new standard in TV sets will require some (limited) investment by manufacturers, who collectively argued via DIGITALEUROPE that “Where advanced features are being used to generate additional revenues on top of the core DTV offering, then fair and appropriate on-going remuneration, or alternative mutually satisfactory commercial agreements, will be due.” (Source: DIGITALEUROPE Policy Statement on Connected TV within the Global Media Value Chain, July 2019).In other words, broadcasters will need to reach some sort of commercial agreement with smart TV manufacturers to support the roll out of the new HbbTV TA standard – and these discussions are at a very early stage, where they are happening at all.

In addition to investments in HbbTV, Europe’s commercial broadcasters are investing heavily to distribute their BVOD streaming services on CTVs, as broadcast TV transitions into multi-platform TV. Increasingly, linear TV and BVOD are being sold together, with BVOD viewing making up for declines in linear viewing. TV audience measurement solutions across Europe have largely been upgraded, to provide better measurement of linear and BVOD together. Some broadcasters are also using their own CTV data to sell against, leveraging registrations, viewing data, device IDs and IP addresses to support targeted advertising.

As a result, many European broadcasters believe that they are already leveraging the full potential of the new connected TV ecosystem to support their advertising offerings. Clearly, there may be other opportunities that could be pursued in theory, but many of these are widely perceived as being either commercially unattractive or too technically complex to pursue.

Next steps for the European Connected TV Initiative

Having completed our initial stage of research, the European CTV Initiative is now moving into its next stage, exploring the opportunities presented by the growth and development of the connected TV ecosystem in five major European TV markets: the UK, France, Germany, Italy and Holland.

In each market, we’ll be facilitating a programme of dialogue and debate with a selection of key industry stakeholders from across the market – buy-side, sell-side, technology providers, intermediaries and trade bodies – to explore the challenges and opportunities ahead, exploring issues such as:

• The development of CTVs as a mass-market, large-scale platform for addressable TV advertising.
• The potential value of CTV data in enhancing TV audience measurement in Europe’s TV markets.
• The role that CTVs can play in bringing new advertisers to TV.
• The value of DSPs and the programmatic supply chain for CTV inventory.
• Aligning measurement, reporting and frequency management across TV, BVOD and streaming services on CTVs.
• The development of win-win commercial relationships between smart TV platform operators, broadcasters and streaming services.
• The role and future value of HbbTV TA as a standard for addressable TV advertising.

We’re also going to be running some specialist deep-dive seminars, exploring the issues around measurement, rolling out addressable on CTVs, and the development of the TV streaming ecosystem.

These seminars will all take place in January and February 2021. If you’d like to get involved in one of the seminars or would like to contribute to the initiative, please do get in touch by emailing [email protected]. Places are strictly reserved for senior industry executives, but we are keen to facilitate an extensive dialogue across the industry – so do please get in touch.