The Pivot To AVOD Is Happening And The Trade Desk Is Here For It

2020 was the year of CTV … and then 2021 was also supposed to be the year of CTV …

… but this year is shaping up to be the real year of CTV.

That was the main message during The Trade Desk’s Q1 earnings call Tuesday afternoon, when the company reported revenue of $315 million, up from $220 million in Q1 of last year.

The Trade Desk did slip into unprofitability for the quarter, however, with a $15 million loss (compared to a $23 million profit in Q1 2021). Its operating expenses grew by $120 million over the same period last year, driven in part by employees returning to offices.

And there was another flip for the company in Q1: Video, which includes CTV, passed mobile as The Trade Desk’s largest ad category by spend. At just above 40%, video is a significant chunk, but not yet a majority, of ad spend flowing through The Trade Desk’s platform.

The CTV revolution

CEO Jeff Green has been spiking the football lately in earnings reports, as some of his long-held predictions have come to fruition. First, there was Google’s delay of third-party cookie deprecation, which seemed like a bold bet when he first predicted Google wouldn’t remove third-party cookies by the initial deadline.

This quarter, it was Netflix who delivered.

“As many of you know, I have spent many of the last 10 years publicly predicting that Netflix and nearly everyone else would eventually show ads,” Green told investors. “I can’t think of a time that the TV landscape has had more positive changes in a short period of time than what has happened in Q1 of this year.”

Now Green only needs Amazon, Google and the walled gardens to open up to open programmatic, as he’s likewise predicted for years, to claim the title of programmatic Nostradamus.

But what Green describes as an unmatched series of positive change for CTV advertising is actually tied to a litany of painful problems for the entertainment industry, including Netflix, Disney, HBO, et al., which are struggling to grow at the same time the linear TV industry is wrestling with its own Nielsen ratings headache.

But the opportunity is real enough.

Last year, Green said The Trade Desk added “exponentially” more CTV inventory to its supply, as Peacock, Paramount+, the Fox-owned Sky network in Europe and other broadcasters expanded their streaming services and shifted more of their inventory to programmatic sales.

But Q1 2022 alone was perhaps even more exciting than all of last year.

Amazon completed its acquisition of MGM and is investing heavily in Freevee, its free ad-supported streaming app (formerly IMDb TV). Disney+ announced it will run ads, as did Netflix, of course. And Time Warner spun out of AT&T (where the Xandr business was a competitor to The Trade Desk) and is now part of Discovery+, which is a major partner of The Trade Desk and has what Green referred to as “one of the most programmatic savvy teams in TV.”

Oh, and The Trade Desk signed a deal with HBO Max to scale up demand for its ad-supported tier.

State of play

Green told investors that since Netflix announced it will launch an ad-supported tier, possibly as soon as this year, people have been asking him and company reps why Netflix, a highly respected data-driven tech leader in its own right, wouldn’t just build the ad tech itself?

The Trade Desk’s main pitch is as a way to ease the reach and frequency issues that plague CTV and streaming media, and which Netflix will surely try to avoid as it rolls out ads to a user base that’s accustomed to paying not to see advertising, thank you very much.

Other CTV services got stuck in an “unfortunate cycle” where relatively few brands claim all the ad inventory, which discourages other brands that would otherwise help provide the needed depth of demand and improve the viewing experience (by not showing the same brand spot over and over).

The Trade Desk claims it has an overabundance of demand for CTV supply, meaning it comes to play with a diversified group of advertisers. In other words, there are enough advertisers in the mix that one brand with a high CPM bid, for example, wouldn’t slurp up all the inventory.

“The surest way out of that [issue] is for them to partner with an objective, independent DSP that manages reach and frequency and budgeting across all the fragmented pieces of streaming,” Green said.

The Trade Desk’s main rival, Google, is also in a complicated spot in the race for CTV ad budgets. The tolerance for media and tech conflicts is low, Green said, as in broadcasters don’t want to be frenemies with the tech they use to sell their ads.

Google, for its part, is not winning friends in the TV industry, and isn’t in a position to make The Trade Desk’s pitch that it doesn’t and will never own media. For the first time this year, for example, Google will host its own upfronts presentation for YouTube, which is usually when broadcasters package and sell their annual content lineups. Google even scheduled its presentation for the same time as Disney’s upfronts. “Which is just sort of bad form,” Green said.

Everything else

Although the theme of The Trade Desk’s Q1 report was clearly CTV, the market has plenty else going on.

“If there’s any topic that didn’t get its due, it’s a close call between our data marketplace and our shopper marketing efforts,” Green said.

Q1 2022 was the first full quarter during which The Trade Desk operated the custom-built DSP integration for Walmart Connect, which is in a test phase with more than 200 advertisers.

The shopper marketing initiatives Green referred to – The Trade Desk has similar partnerships with Target Roundel and the Walgreen’s ad platform – mainly bring in large CPG brands. But another priority is the mid-market. Green said The Trade Desk now has more than 1,000 customers representing tens of thousands of advertisers. That pales in comparison to Google or Facebook, which measure ad accounts in the millions, but ain’t nothing to sniff at.

Another big priority is the Unified ID program (UID2) and identity on the open web in general.

UID2 is based on emails and phone numbers collected by publishers, as opposed to cookie-based identifiers. Unlike third-party cookies, which were ubiquitous, personally identifiable information, and therefore the UID2 identifiers built on them, will be rare and prized. But Green said a logged-in base of at least 10% can then be used to effectively model results and create scaled lookalike audiences.

“Incidentally, this is exactly the same way that companies that use log-ins today as their primary identity mechanism rather than cookies, like Google or Facebook,” he said. “That’s exactly why they’re in a good position is that they will use that data and then model on some additional percentage.”

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