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What is OTT Advertising, and How Does It Work?

Preethy Ann Kochummen
Senior Director Marketing & PR
Over-The-Top advertising
Tags :
15 Mins

Nobody watches ads. Yet, ads run the world, or at least the World Wide Web. A staggering 98% of Meta’s revenue comes from ads, and YouTube generated $28bn from ads in 2021. Somehow, they got us to watch. But how?

Advertising has evolved over the years - from crude, traditional forms to digital mechanisms that reach billions of people today. 

The art of Advertising is as old as commerce itself. Business owners have long sought ways to reach their audience in the best possible ways - first, starting via word-of-mouth communication. After a while, banners, posters, visual and physical mediums, and out-of-home advertising became the primary methods.

The advent of the internet changed all of this. Suddenly, it became possible to advertise products and services to potential consumers half a world away and track the ads' performances.

While many forms of digital advertising are popular today, few are as unique as OTT advertising. It has all the benefits of alternative digital advertising mechanisms, plus a few other unique perks that make it a worthy option for advertisers and businesses. 

According to Vai Gupta, investor and entrepreneur at global adtech companies,

“OTT is the fastest-growing media segment in the current world. Unlike Web or Mobile, OTT advertising can be much more engaging and effective. By leveraging the key differentiators of OTT advertising, marketers can create customized ad experiences that are tailored to the individual viewer's needs and interests. This helps them capture an audience in a manner that was not possible with traditional media”  

In this piece, we’ll exhaustively cover the topic of OTT advertising, explaining how it works, the different dimensions it takes, and its functional components. Let’s get to it.

Definition of OTT advertising 

OTT advertising is defined as advertising served directly to an audience via internet-based streaming devices. OTT-supported devices include:

  • Streaming boxes (Amazon Fire TV, Samsung TV, and Android TV)
  • HDMI sticks (Amazon FireStick, Chromecast, Roku)
  • Gaming consoles
  • Internet-enabled DVD players/Smart Blu-Ray)

You remember old-fashioned top boxes, don’t you? 

OTT advertising is an upgrade on advertising forms that are satellite or cable TV based. Such forms of advertising could be more efficient today, as most consumers use streaming devices more often than not.

OTT refers to “over-the-top.” In the advertising context, it refers to serving ad content “over top boxes,” i.e., over the internet. With streaming viewership increasing daily, driven by the successes of platforms like Hulu, Netflix, and Amazon Prime, OTT advertising is fast gaining popularity as a means of reaching a vast audience.

Over-the-top implies streaming platforms’ ability to bypass regular satellite TV providers. As a result, the ads have no geo-restrictions, and there’s no need to conform to broadcast schedules. 

But there’s a catch.

People stream using multiple devices, such as mobile phones, tablets, laptops, and smart TVs. As a result, there’s the need to ensure that the ads are well-formatted and programmed to work cross-platform. 

The result is that the ads often reach a smaller audience. However, due to its underlying mechanisms (which will be discussed later in this piece), the ads are better targeted and stand a better chance of conversion than many other digital advertising forms.

Types of OTT advertising

Types of OTT advertising

OTT advertising is done via any of these three methods:

  1. Programmatic OTT advertising 

This method uses automation to serve the ads across various streaming networks. Instead of being served directly, the ads are served via DSPs (demand-side platforms) like TubeMogul, APPNexus, MediaMath, and Rocket Fuel.

The programmatic method of OTT advertising is cost-effective and has excellent targeting. However, there’s limited control over where the ads appear.

  1. Platform direct 

This method of serving OTT ads involves directly purchasing ads from OTT device providers like Amazon Fire TV or Roku. 

  1. Publisher direct

Here, the ad serving occurs within the confines of the OTT service provider. This way, advertisers and publishers have greater control over ad placement.

However, it’s a costly alternative and has limited reach.

How are OTT ads delivered?

The delivery of OTT ads relies on the mode of communication between OTT devices and the streaming platform. Examples of these communication mechanisms include VPAID (video player-ad interface definition) and VAST (video ad serving template) tags. 

Another factor determining OTT ad delivery is how the ads themselves are inserted, whether via SSAI (server-side ad insertion) or CSAI (client-side ad insertion).

Here’s the procedure for OTT ad delivery:

  1. Audience creation

To begin with, the OTT audience is formed based on the streaming platform’s subscription data. However, the data could be complemented with information from other first and third-party sources, such as their preferred show categories on the said streaming platform. 

  1. Campaign launch 

This is the stage where audience matching starts. That is, the platform matches the audience for particular TV subscriber lists across different OTT services. After that, the ads are pushed and downloaded, while the OTT devices handle the buffering. 

  1. Ad display 

This is the stage where the OTT devices communicate with the platform via VPAID or VAST tags.

  1. Reporting 

Here, the OTT operator reports poorly performing ads to the advertiser, generating comprehensive data analytics after the campaign. 

Best OTT advertising practices

best OTT advertising practices

If you plan to use OTT marketing techniques and services, you must ensure that your ads are relevant to the target audience. Here are some guidelines:

  1. Keep it short

Consumer psychology indicates that people rarely sit through lengthy ads except if the brand is well-known, or there’s some surety that it will entertain. Most people are inclined to skip ads once they appear on their screens.

As a publisher or advertiser, ensure to keep your OTT ads as short as possible, without compromising on the message's quality.

  1. Format properly

OTT marketing is directed to several streaming platforms, all of which are accessible across various devices. 

Your ad probably looks great on a wide, resolution-rich smart TV screen. However, have you thought much about how it looks on smartphones and other smaller devices?

As such, you should pay attention to the ad formatting to optimize responsiveness across all devices, including smartphones, PCs, and TVs. 

  1. Create relevant ads only

As OTT advertising is highly targeted, the best way to get returns on your advertising investment is to make your ads as relevant as possible to the target audience.

You can conduct market research or use an OTT recommendation engine to help you achieve better ad conversion rates. By creating relevant, personalized ads, you build trust in your potential customers and increase your chances of retaining them. 

How does OTT advertising work?

OTT advertising is a complex mechanism. We break down its workings as follows:

What are OTT services?

In a nutshell, OTT services refer to the software that facilitates over-the-top streaming on your device. 

Quite naturally, there are several such devices available today. However, they all adhere to one of the following models: 

TVOD (Transactional Video On Demand)

This model is identifiable with platforms like Vimeo, Google Play, Vudu, and iTunes. Here, you pay for services on a content-by-content basis. 

AVOD (Advertising-based video on demand)

This is a free streaming content delivery model. However, it comes with a catch. Ads

Pluto, Hulu, YouTube, TubiTV, and Crackle are examples of platforms that run this model. 

SVOD (Subscription video on demand)

This is an ad-free version of the advertising-based video-on-demand model. If you don't want to see ads, an SVOD OTT service works perfectly.

However, you'll have to pay a subscription fee for this feature. 

Already, many popular streaming platforms that run this model come to mind. Examples include Hulu Plus, Amazon Prime Video, Disney Plus, and Netflix. 

MVPD (Multichannel video programming distributors)

This is a mixed model where users pay combined fees for broadcast and streamed content. Such OTT services include YouTube TV, Sling, and AT&T Now.

Now, you can summarize the advertising jargon thus:

You enjoy streamed content (such as your favorite drama series) via OTT streaming services (such as Disney Plus) on OTT devices (such as your tablet, smart TV, or smartphone).

What do OTT ads look like?

The primary defining feature of OTT ads is that they're mostly unskippable. That is, you'll have to watch them till the end. 

Video ads and banners are the most common forms of these ads, while the OTT platforms that service these ads make it possible to format them for an optimized user experience. 

Over time, as the OTT advertising industry and its adjoining technologies evolve, advertisers can create ads with interactive features. 

Benefits of OTT advertising

Today, advertisers are finding more reasons to switch to OTT advertising for revenue generation. Here are some of the benefits:

  1. Impressive Growth rate

According to Statista, OTT revenue will exceed $476 billion in 2022. 

These figures are particularly impressive, particularly when examined in light of the global pandemic. Since 2020, the growth rate for streaming services and their accompanying ads has almost tripled. 

Additionally, revenue from OTT advertising is expected to exceed $110bn in 2023. 

For this reason, media providers recognize the need to develop ad-supported versions of their platforms or begin streaming content. 

  1. Consumer reach 

All this talk about streaming ads might have you wondering about the viability of ads in the first place. After all, most people are more likely to skip ads than watch one.

If this is the case, why is the ad-supported streaming industry growing?

It's simple. The reason for the popularity of OTT ads is the value of video-on-demand content in terms of cost-effectiveness. That is, consumers are still more likely to use streaming platforms, even if they come with ads (as they're often cheap or free)

Thus, OTT advertising is bound to reach more audiences simply because of the overwhelming popularity of streaming services. 

  1. Efficient targeting

One of the most important things to consider in digital media advertising is the target audience. Without precise ad targeting, advertisers would be expending capital endlessly only to earn reduced revenue.

Alternative forms of advertising, such as satellite TV/cable TV advertising, only afford a little leeway regarding audience targeting. The only option it offers advertisers is choosing DMAs (Designated Market Areas), which are arbitrarily clarified regions. For instance, as large as the USA is, there are only 210 DMAs.

If you have a very specific audience, traditional advertising won't work efficiently.

On the other hand, OTT services have more subscriber data for advertisers to work with, meaning that they can target their audience to a high precision level based on criteria such as:

  • Device type
  • Demographics
  • Consumer behavior
  • Zip codes
  1. Traditional TV advertising's best alternative

Today, we're witnessing the slow death of TV commercials as more people switch to streaming services. To understand the reason for this and how it benefits OTT adversity, it's important to examine the original audience for regular cable TV. 

A close study of their TV-watching behaviors related to ads and commercials reveals three categories of people. 

The first category isn't particularly excited about anything on TV. They never subscribed to premium cable TV channels. However, they occasionally watch stream content via popular services like Amazon Prime, Netflix, and Hulu. 

The second category of TV audiences is the regular subscribers to premium TV channels, who have decided to pay for lesser plans for some reason. They occasionally enjoy cable TV but are increasingly inclined to streaming platforms.

The third category of viewers is those who have fully switched to streaming services and do not subscribe to cable TV anymore. 

OTT advertising is a guaranteed method for traditional TV advertisers to reach these audiences. 

  1. The allure of the big screen

While OTT ads are delivered across various platforms and devices, it is via the big screen that its biggest impact can be appreciated. 

OTT advertising provides living room access, so to speak, where individuals and their families relax at their leisure. As a result, advertisers can publish ads and expect a full immersion for the duration of the ad's screen time.

Additionally, OTT video ads are usually displayed on full screens and do not have controls for minimizing or skipping.

As a result, OTT ads tend to have a wide-ranging audience type rather than being limited to you, tech-savvy folk. 

  1. It offers the best features of traditional advertising

OTT advertising features the best of both worlds- modern and traditional advertising. 

Ad targeting is one of its most impressive features, and given that OTT advertising technologies are still growing, its potentials are limitless. 

Also, OTT ads may be short, but their nature means they're more personalized. Advertisers can use this to better target audiences with functionalities noticeably absent in traditional TV advertising. 

  1. Dynamic ad insertion

This feature allows advertisers and publishers to interchange video ads or banners in video-on-demand, linear or live content.

There are no traditional TV advertising limitations with video-on-demand streaming, such as restricted broadcasting schedules. This gives advertisers more leeway to insert ads as they like within the streaming service. 

  1. Advanced analytics

Similar to other modern forms of advertising, such as web ads, OTT advertising Frameworks provide access to advanced analytics dashboards. 

“OTT provides analytics insights that can help marketers optimize their ad campaigns. Through real-time data and analytics, OTT platforms are able to collect and interpret data and provide the actual impact of ad spending.”  

— Vai Gupta, Adtech expert 

Challenges of OTT Advertising

Man facing business challenges

OTT advertising clearly has several benefits that make it a more viable option than traditional TV advertising. However, as a relatively new industry, it faces some challenges:

  1. Accessibility

Presently, most of the OTT and smart TV inventory that is available programmatically is only accessible directly from the OTT service providers or the smart TV manufacturers.

  1. Limited capabilities

Because OTT ads are designed for the streaming market alone, there is reduced functionality, especially in comparison with web browsers.

Ad targeting criteria are restricted to the data that the OTT services provide. There's no flash support or cookies to help advertisers actively collect audience data as they view it in real-time. This can have a negative impact on attribute conversions. 

  1. Third-party incompatibility

Because most OTT devices are closed-source, third-party tags and digital ads from non-OTT platforms are incompatible, resulting in measurement discrepancies. 

Let us examine the case of VPAID.

Video Play-Ad Interface Definition is another form of the VAST model. The tag allows publishers to access comprehensive analysis for video ads and enable interactive media ads. 

However, OTT platforms cannot implement this kind of rich ad experience, as the ad server-device communication has to be based on the VAST tags, which have limited functionality. 

  1. Regulations and standards

As a new industry, OTT advertising has a distinct lack of support for measurement or third-party ads. Additionally, no industry-wide standards define the services or govern OTT inventory and media quality.

Also, the lack of governing standards means that the potential for ad fraud is ever present. 

Although OTT platforms aren't as susceptible as PCs, ad fraud can pose serious issues without defined regulations in place. Things that constitute ad fraud include invalid traffic detection and poor naming practices. 

2 Best Examples of OTT advertising campaigns 

Here are two examples of excellent OTT advertising campaigns:


The 30-second "You in Miami?" ad draws inspiration from the city's diverse culture.

The message targets "crypto for everyone" and was aired during an NBA game before moving on to OTT platforms and social media

Bassett Furniture

In early 2022, Bassett Furniture decided to take a huge step in its marketing efforts by focusing primarily on OTT advertising.

However, the company's approach is to continue using traditional methods while leveraging the innovation benefits of OTT advertising. 

How to create an effective OTT advertising campaign

How to create an effective OTT advertising campaign

Advertisers have a lot to benefit from OTT advertising mechanisms. The targeting is better, the experience is fully immersive, and the conversion rates are higher, leading to larger revenue streams.

However, to optimize OTT advertising campaigns, it's essential to adhere to some rules. 

These steps will guide you through the process:

  1. Research the ad platform

An OTT search engine is an efficient way to discover important details about ad platforms. 

For instance, you can compare targeting capabilities and prices and learn whether their inventory fits the purpose and standard of your ad placement. 

  1. Check out the offered creatives

OTT platforms may offer various creative configurations, such as rich media ads, banners, and videos. 

You should look out for the short-duration options, as they're more effective and cost-efficient than the lengthier versions.

  1. Use only relevant impressions

After narrowing down your options via targeting, the next step is to show them only what is relevant. 

Concision is key here, as you have to display as much relevance as possible in as short a period as possible.

This method is cost-effective and is likely to result in high conversions.

  1. Analyze the ad performance

No ad campaign is complete without performance analysis. As you run the campaign, use the built-in analytics tools to peruse the metrics to see the best ways to optimize your service and ad.

  1. Don't spam

OTT platforms offer advertisers options regarding the frequency of the ad displays. 

Ensure to limit the frequency so that your well-timed ads do not turn into something other than spammy content for viewers. Also, this is a cost-effective measure. 

  1. Use voice-overs

In social media video ads, the messages are designed to be communicated without audio being turned on. 

OTT ads are similar. However, to optimize viewer ad immersion, you should add voice overs. This psychological marketing technique can yield great results, as your brand can be associated with a "voice" and personality and make lasting impressions on the audience. 

What platforms do viewers prefer?

Today, smart devices are gaining popularity like never before.

It is estimated that over 150 million TV watchers in the USA use CTV gadgets, with the number projected to top 205 million at the end of 2022. 

OTT advertising thrives here because consumers can stream content on multiple devices. Today, many people stream content on consoles, smart TVs, PCs, and tablets. 

Although it is hard to determine the exact device that viewers prefer to view content on, the fact that there's so much viewing versatility is one of OTT advertising's biggest pros. 

The future of OTT advertising 

Over-the-top advertising has a bright future, despite its many challenges at present. 

Further, over-the-top marketing efforts are primed to grow, seeing how efficiently streaming platforms gather vital user data and statistics. This data will help advertisers target audiences better and generate even more revenue. 

Over time, OTT ads may gain popularity and attain suitability for alternative on-demand platforms that support creative ad formats. As such, over-the-top marketers can maximize ad campaigns through internet-based targeting and retargeting. 

In time, viewability rates will rise due to the suitability of OTT content to the products and services they're interested in. 


Streaming platforms are highly popular today and are fast replacing traditional cable TV. 

The streaming networks themselves are delivering steady, quality content to viewers, evidenced by metrics from Netflix's churn rate and subscriber figures from other leading platforms like Hulu, Disney Plus, and Amazon Prime. 

As such, OTT advertising is sure to grow at the same rate, leveraging on increasing viewership and better opportunities for ad targeting.


What is OTT advertising?

OTT advertising, otherwise known as over-the-top advertising, is an internet-based form of ads served over streaming networks to various devices. 

Can you target OTT ads?

Yes. OTT ads are highly targeted, as advertisers can direct their content to viewers based on geolocation, interest, device type, and demographic.

What are OTT devices?

OTT devices include internet-based smart TVs, consoles, smartphones, and PCs that can stream over-the-top content. 

Are OTT ads broadcast schedule-limited?

Unlike traditional cable TV commercials, OTT ads are not restricted by broadcast schedules.

Are OTT ads skippable?

Most OTT ads are not skippable, and you must watch them until the end. 

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