September 11, 2024
The ongoing discussions around The Trade Desk's (TTD) potential development of a connected TV (CTV) operating system have stirred up both enthusiasm and skepticism (and denial by TTD’s CEO, Jeff Green). There’s unquestioned opportunity here, as highlighted in the embedded graphic, with TTD hoping to carve out a strategic position in a highly fragmented landscape of providers and devices.
Lots of ink has been spilled on whether this is a good idea and how they would do it. Instead, let’s consider the more profound question: What could TTD achieve if they chose to proceed and executed on this vision of controlling the CTV operating system?
As someone who’s closely studied the history of media and advertising, it’s clear that despite the rapid technological advancements in media, the underlying economic drivers have remained remarkably consistent. Distribution has always been the lifeblood of media success, and while the internet shifted us from a fixed distribution model (such as media markets defined by households), to a dynamic one where global markets are instantly accessible, certain fundamentals haven't changed.
Today’s digital media model offers three primary levers for media companies to differentiate and create value beyond the essential components of quality and scale:
Exclusivity: Controlling audience access also means controlling relationships with buyers. This is central to CTV's playbook. Google exemplified this with YouTube and DV360, Amazon with Prime Video, and the same can be said for Roku and Netflix.
Unique Data: This is the core of the walled garden strategy, and it’s quickly becoming the dominant model in CTV. For example, Amazon’s exclusive shopper data and attribution insights are only accessible through Amazon’s ecosystem. Similarly, Meta and TikTok have built massive walls around their valuable audience data, creating scarcity in the market. Walmart’s acquisition of Vizio echoes this exact investment thesis—data and attribution as the differentiator.
High-Impact Creative: Offering unique, attention-grabbing creative formats that drive engagement and conversions is another powerful differentiator. Media companies with this capability stand out by providing advertisers something that’s not just scalable but also performance-driven. This started with homepage takeovers and rich media, and has now evolved to contextually relevant performance formats like shoppable.
Most major CTV companies already have at least two of these three differentiators, and they’ve used them to solidify their market share. However, the distribution challenges of the 20th century are far from gone. In fact, in the context of a new CTV operating system, they are very much alive, creating a formidable network effect hurdle for any new entrant.
Let’s assume TTD cracks the distribution puzzle—perhaps by licensing their system to a large manufacturer or even acquiring a hardware player (gulp) like Philips. This move might only secure a small global market share, but it could be the key to unlocking a bigger strategic opportunity.
In traditional media, the network-to-affiliate model has stood the test of time, providing a clear pathway for distribution partners to gain access to content in exchange for carriage fees or ad inventory. For instance, Charter, as a traditional multichannel video programming distributor (MVPD), gets 2 minutes per hour of cable programming to monetize. Roku typically takes 30% of the ad inventory across its platform to sell through its OneView DSP.
For TTD, controlling a CTV operating system would mean gaining inventory to be exclusively monetized on its platform, limiting access to competitors. Beyond this, they would have access to valuable data through automatic content recognition (ACR) technology, providing deep insights into what’s being consumed, the context of content, sentiment, and more.
Moreover, by controlling the OS, TTD wouldn’t just be confined to video ads within programming. They could control everything from the TV guide and landing page to the app store, unlocking new revenue streams in the process. This would position TTD as a natural acquisition target for major media players looking to rival the scale and capabilities of Google, Amazon, and Meta.
Whether this ambitious venture succeeds or even materializes remains to be seen.
But the sheer scale of this bet speaks volumes about TTD's strategic vision—especially for a company that already influences nearly $3+ billion in ad spend annually—-that is not subject to an antitrust investigation.
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