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  • Writer's pictureScott Halpert (VP Ad Products + Business Development)

How Programmatic Advertising Uses AI Technology

Do you know how programmatic advertising uses AI and Machine Learning? Ad-supported OTT streaming video is expected to grow at a CAGR of 29.4% over the next several years, exceeding $1 trillion in advertising revenue by 2027. A large portion of the advertising on these services is what the industry calls programmatic advertising.

Programmatic advertising employs AI and other technologies to serve relevant ads to OTT viewers. It's all about using sophisticated technology to deliver the right ads to the right viewers via streaming video.

Quick Takeaways

  • Programmatic advertising refers to the process of using technological systems to effectuate targeting advertising to the specific viewers based on that viewer's habits and behavior

  • Programming OTT video advertising uses SSPs and DSPs to match advertiser budgets and targets to available ad slots and viewer segments

  • Programming advertising employs AI and Machine Learning for ad personalization, content matching, bidding and budgeting, and predictive analysis of ad performance

Understanding Programmatic Advertising

Programmatic advertising refers to the process of "programming" advertising to a consumer's individual habits and behaviors. Programmatic advertising uses artificial intelligence and real-time bidding to automate and streamline the ad buying process and serve targeted ads to individual consumers.

Programmatic advertising is employed across various channels, media, and devices. There are programmatic display ads on web pages and programmatic mobile ads on smartphone apps. Programmatic advertising is particularly popular on ad-supported OTT services, which are a large and growing part of the OTT marketplace.

eMarketer's U.S. Programmatic Video 2022 report reveals that OTT programmatic ad spending increased 82.4% in 2021. Pixalate's State of Connected TV/OTT: Ad Supply Trends Report notes that programmatic video advertising now reaches 72% of U.S. households—with almost half of those ads (49%) being served to Roku devices.

How Programmatic Video Advertising Works

Before the advent of programmatic advertising, advertising was purchased and sold by human beings. Advertisers negotiated ad pricing and placement with publishers, who delivered the ads to content providers. The process was slow and inefficient and didn't consistently deliver the right ads to the right audiences.

Programmatic advertising changes this dynamic. Deciding the best programming for each ad is now completely automated, better matching ad content with specific viewers. Bidding on ad placement is also automated, which speeds up the process and makes it more efficient. The middleman is eliminated, and the entire process is streamlined.

For video advertising on OTT services, the programmatic advertising process involves five general steps, detailed as follows.

1. OTT Service Communicates with SSP

The process starts when an OTT service (publisher) communicates with a supply-side platform or SSP. SSPs are software-based advertising exchanges designed to automate the selling of advertising space in OTT programming. The publisher communicates to the SSP what ad spaces are available in which programs.

2. SSP Provides Viewer Information to DSPs

Next, the SSP makes available to multiple demand-side platforms, or DSPs, data about available ad placements. A DSP, like an SSP, is an automated software solution that provides information from SSPs to their customers, the ad buyers. This information includes available ad blocks, where those ads will run, viewer demographics, and other information of interest to advertisers that want to fine-tune ad content for specific audiences.

3. Advertiser Selects Target Audience and Budget

Concurrent with what's happening with SSPs and DSPs, advertisers determine what audiences they want to target based on demographic specifics. They also determine the size of their budget. All of this information is fed to the SSPs in preparation for submitting their bids.

4. Advertiser Places Bids Through DSP

Knowing how and to whom they want to target their ads, the advertiser places its bids through one or more DSPs. The advertiser specifies to whom it intends to target its ads and how much it is willing to pay.

5. Ad from Highest Bidder Streams in OTT Programming

The DSP's automated bidding process examines bids from multiple advertisers and determines which is the high bidder for a given ad slot via an internal action. It then delivers the advertiser that won that internal auction to the SSP in for form of a bid offer. The SSP will examine all of the bid offers from various DSPs, choose a “winner” and provide that ad to the OTT service, which then inserts the ad into the open slot in its programming.

How Programmatic Advertising Uses AI Technology

The process of matching an ad to specific program content and audiences is facilitated by using artificial intelligence (AI) technology. AI works by employing a series of algorithms that learn from and adapt to the patterns encountered, helping it get "smarter" and more useful as time goes by.

AI is used in all five stages of the programmatic advertising process and is an integral component in both audience targeting and automated bidding. This provides several benefits.

Ad Personalization

The first way that programmatic advertising uses AI is in ad personalization. AI technology can thoroughly analyze viewer data and segment audiences in relevant ways. This enables DSPs and advertisers to serve highly personalized ads to tightly targeted viewer segments.

Content Matching

AI is also used to match the advertiser's audience targets to available audiences in various OTT programming. This audience matching is exact—or exact as it can be, depending on the data provided—and can be done in real-time. Because of AI, campaigns do not have to be created weeks or months in advance and can be quickly and easily adapted based on changing analytics and conditions.

Bidding and Budgeting

Ai manages the automated bidding process, enabling advertisers to get optimum use of their ad budgets. Advertisers don't have to overpay when there is little competition for a given slot, enabling their ad dollars to go further and be better targeted towards more potentially productive ads.

Predictive Analysis

AI is also used to provide predictive insights into ad performance. Based on the available viewer data and past performance of similar ads, the AI system can help advertisers better target their ads and bidding.

How Programmatic Advertising Benefits Advertisers, Publishers, and Viewers

AI-based programmatic video advertising benefits all parties involved: advertisers, publishers (OTT providers), and viewers.

Advertisers benefit by being able to deliver highly personalized advertising to OTT viewers. Ads can be programmed based not just on the content of a program, but also on the demographics and behaviors of individual viewers, based on customer data provided by OTT providers. This lets advertisers serve the right message to the right consumers at the right time and place.

OTT providers benefit from the increased fill rates resulting from programmatic's assured bidding process, minimizing uneven ad fill and unsold slots. Publishers can maximize advertisers' growing demand for programmatic ads and maximize their revenues.

Viewers benefit by seeing more relevant advertising. Instead of being subjected to broad-based and often irrelevant ads, OTT viewers now see ads targeted to their specific interests and behaviors. Viewers prefer a personalized experience across the entire purchasing process, and that starts with the ads they see when streaming video.

Let Penthera Improve Your Programmatic Advertising

The experts at Penthera are dedicated to helping OTT providers improve the viewing experience and maximize their revenues. Specifically, our 2nd Look platform increases render rates, and ad fill rates and reduce uneven ad distribution on SSAI platforms. 2nd Look enables better decision-making by both primary ad servers and programmatic partners. In addition, our other streaming solutions eliminate last-mile issues such as buffering and startup failure that can negatively impact the OTT viewing experience.

Contact Penthera today to learn more about how we can help you improve your OTT programmatic advertising revenues.


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