Direct-to-consumer brands have flooded the streaming TV marketplace in recent years, and while momentum isn’t expected to slow, these ad dollars won’t necessarily show up in full force during this year’s upfront negotiations. 

The need for flexibility, especially in the unsteady economic climate, continues to make long-term TV commitments intimidating for many DTC brands at this stage. 

Eyewear brand Zenni Optical, for instance, has increased its investment in connected TV by 100% year over year (it paused CTV completely last year), but Amanda Beamish, associate director, performance marketing, at the company, said upfronts aren’t in its roadmap for 2023. 

“We like to be very fluid and flexible,” Beamish said. By definition, upfront deals lock a brand into a long-term ad commitment. The trade-off typically is a cheaper price (and more sought-after inventory) than when purchasing commercial time closer to the air date in the so-called “scatter” marketplace. 

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“Our DTC clients are usually very nimble—they love flexibility,” said Robin Cohen, executive VP, integrated media investment and planning at DTC media planning and buying agency Rain the Growth Agency, which has worked with DTC clients such as Lume and Rothy’s. 

“Looking at that, and then looking at, you know, where the marketplace is going right now, it doesn't feel like it makes a lot of sense to push some of these advertisers into the upfronts, because my prediction is that we’re still going to have a very healthy scatter marketplace, and we’re going to be able to get deals moving into next year,” she continued. 

A lot of Cohen’s clients, she said, are not only looking for flexibility—they’re also being cautious about fluctuating inventory costs in the space. That’s partly why she doesn’t plan to advise many of her DTC clients to attend upfronts—Cohen doesn’t want to lock them into inventory. 

Most DTC marketers are still at the beginning stages of scaling their investment in CTV, according to Jason Fairchild, co-founder and CEO of tvScientific, a CTV media buying platform with mostly DTC brands as clients, such as Wisp and Nurx. 

Last year, DTC brands such as Uber and DraftKings made NewFronts commitments with Roku for the 2023 calendar year, according to Miles Fisher, senior director, ad platform sales and strategy at Roku. 

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Although he said Roku expects more DTC brands to make commitments for the 2024 calendar year, Fisher noted that DTCs are typically more interested in purchasing inventory outside of NewFronts in the “scatter market,” rather than making longer-term commitments.

The increased interest in the scatter market has to do with two things, Fischer said. One is that as larger brands pull spending due to the economy, rates go down and DTC brands can be “opportunistic” about scatter spending.  

Additionally, “a lot of the DTC market has really been impacted by changes to Apple,” with iOS 14, Fischer said, as well as the “Facebook and Google machines not working as well.” He thinks that, as a result, those DTCs are coming to streamers for “diversification of not only media, but also consumers.” 

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DTCs double down on CTV

There’s no question DTC brands are becoming bigger players in TV advertising—57% of DTC brands plan to increase their spend in the first half of 2023, and more than two-thirds already use the channels for marketing, according to a recent survey from media company Digital Remedy and research firm Dynata. 

More advanced targeting capabilities for CTV, which allow brands to have more data and insights that mimic advertising on digital channels, have led DTC brands to look more closely at the space over the past few years. 

Plus, with major companies slashing marketing budgets over the past few quarters due to the current economic downturn, CTV ad inventory has been particularly inexpensive lately. 

In the fourth quarter of 2022 and first quarter of 2023, CTV ads were anywhere from 20% to 25% cheaper than they were six months prior, Fairchild estimates. “CTV CPMs have come down, driven by the pullback associated with economic uncertainty,” he said. 

“There is a lot of open inventory across most of the providers right now, and those available impressions are really helping to push down the CPMs,” Cohen said, which has enabled her agency to get clients “some great deals” on CTV inventory. 

“Right now, I think there’s just a little bit more supply out there than what you would see on the linear side of things and in terms of impressions. And that has really helped to bring CPMs down for us,” Cohen continued.

Simultaneously, marketers have started to find solutions to CTV’s measurability problem, which is particularly appealing to DTCs.

“DTC marketers, if you look at the history of how they came to be as a category, most of them grew up on Facebook and search. Their DNA is really about very measurable, ROI-driven media channels,” Fairchild said. For instance, if a DTC brand invested $100,000 into Facebook ads, they had a good idea as to what their return on ad spend would be, he added.

“Facebook was great for that, because you had massive scale, and you could understand the return on ad spend” he continued. But as CTV usage was “skyrocketing,” Fairchild continued, social media advertising started to go down “in efficacy and scale to the tune of about 30% or 35%, depending on which DTC marketers you talk to,” he said.

That, according to Fairchild, drove a “mandate to look for new measurable channels that have massive scale.” With CTV’s newfound measurability, it became “the obvious choice.”

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About 90% of consumers watch CTV and OTT channels with a phone in their hand, according to Fairchild, which creates a measurable feedback loop that marketers and vendors have started to take advantage of. 

“Connected TVs, by definition, are connected to the internet,” he said, which makes it possible to see one-to-one conversions, such as when someone sees a CTV ad for a toothbrush then purchased a toothbrush on their smartphone immediately after. Fairchild said drawing the path between those two actions was a “big catalyst moment” for the industry that is only “a couple years old.”

“We're seeing CTV actually paying out for clients in a way that it hadn't been in previous years,” Cohen said. “I think we've gotten to the point where we have better measurement tools in place, CPMs have come down, our targeting has become better.”

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CORRECTION: As result of incorrect information provided by Roku, an earlier version of this story incorrectly described the brands with which it secured 2023 NewFronts commitments.