Connected TV (CTV)

Connected TV (CTV) refers to any television set used to stream video content over the internet. Think of it as the evolution of your living room screen, transforming it from a passive receiver of broadcast signals into a smart, on-demand entertainment hub. This is distinct from traditional Linear TV, where you watch scheduled programs on specific channels. While often used interchangeably with Over-the-Top (OTT), there's a subtle difference: CTV is the device (the television itself), while OTT is the delivery mechanism for the content (the internet service that “goes over the top” of traditional cable infrastructure). The rise of CTV represents one of the most significant shifts in media consumption in a generation, as viewers cut the cord from expensive cable bundles in favor of the flexibility and choice offered by streaming. For investors, this migration of eyeballs has triggered a massive reallocation of advertising dollars, creating a new and complex ecosystem ripe with opportunity.

A television can be “connected” in several ways, and understanding these pathways is key to seeing the whole investment picture. The main hardware components that make up the CTV universe include:

• Smart TVs: These are television sets with built-in internet connectivity and their own operating systems (e.g., Samsung's Tizen, LG's webOS, Vizio's SmartCast). They offer a native app store, much like a smartphone.
• Connected Streaming Devices: These are external gadgets that plug into a TV's HDMI port to make it “smart.” They are the dominant players in the space and include devices like Roku, the Amazon Fire TV Stick, Apple TV, and Google Chromecast.
• Gaming Consoles: Modern consoles like Sony's PlayStation and Microsoft's Xbox are powerful media centers, offering access to nearly all major streaming applications in addition to their core gaming functions.

Each of these hardware categories serves as a gateway to the world of streaming content, and the companies that control these gateways hold a powerful position.

For a value investor, the CTV boom isn't just about chasing the hottest streaming service. It's about understanding the underlying economics of this new media landscape and identifying companies with durable competitive advantages and rational valuations.

The most profound change brought by CTV is in advertising. Linear TV advertising was a blunt instrument; advertisers bought slots during popular shows hoping to reach their target demographic. CTV advertising, however, is digital. This means it is:

• Addressable: Ads can be targeted to specific households based on data like location, viewing habits, and demographics. A car company can show SUV ads to a family in the suburbs and sports car ads to a young professional in the city, all while they watch the same program.
• Measurable: Unlike traditional TV, advertisers get detailed analytics on who saw their ad and what actions they took afterward. This allows for a clear calculation of Return on Investment (ROI).

This has fueled the explosive growth of Ad-Supported Video on Demand (AVOD) services (like Pluto TV, Tubi, and The Roku Channel), which offer free content paid for by ads. It has also led premium services like Netflix and Disney+, once champions of the ad-free Subscription Video on Demand (SVOD) model, to launch cheaper, ad-supported tiers to capture a wider audience and create a new, high-margin revenue stream.

The opportunities in CTV are not monolithic. Value can be found at different points in the chain, from the device in your living room to the technology powering the ads.

These are the companies that control the operating system (OS) and the user's home screen—the “front door” to all streaming content. Think Roku, Amazon (Fire TV), and Google (Google TV/Android TV). Their business model is brilliant. They often sell their hardware at a low margin, or even as a loss leader, to build a massive user base. Their real profit comes from:

• Revenue Sharing: Taking a percentage of subscription fees or ad revenue from streaming apps on their platform.
• Premium Ad Space: Selling high-value ad placements on the home screen itself.

Control over the user interface and content discovery creates a powerful moat, as they are the essential tollbooths through which nearly all content and advertising revenue must pass.

This category includes the streaming services themselves, from giants like Netflix to smaller, niche players. For years, the market rewarded them purely for subscriber growth, leading to a “growth-at-all-costs” mentality and astronomical spending on content. The value investor's perspective is now becoming mainstream: the focus has shifted to profitability, positive free cash flow, and a rational path to sustainable earnings. The key is to find services with pricing power, a loyal audience, and a content strategy that doesn't require burning endless piles of cash.

This is the “picks and shovels” play. These companies build the technology that makes CTV advertising possible. They include Demand-Side Platforms (DSPs) like The Trade Desk, which help advertisers buy ad inventory, and Supply-Side Platforms (SSPs) like Magnite, which help publishers (the streaming services) sell their ad space efficiently. While complex, these tech platforms are essential plumbing for the entire ecosystem and can be highly profitable as the volume of CTV ad spending grows.

Despite the tailwinds, investing in CTV requires caution.

• Fierce Competition: The “streaming wars” are real. The space is incredibly crowded, which puts constant pressure on pricing and margins and drives up content costs for everyone.
• Fragmentation: The sheer number of different devices, operating systems, and services makes the ecosystem complex. This can create challenges for advertisers trying to measure campaigns consistently across platforms.
• Privacy Concerns: Increased data privacy regulations, especially in Europe, could limit the targeting capabilities that make CTV advertising so valuable.
• Valuation: As with any high-growth sector, valuations can become detached from reality. A disciplined value investor must wait for a rational price that offers a margin of safety, rather than getting caught up in the hype.