How connected devices will disrupt the TV ad market

Linear TV makes up the bulk of video ad dollars today, with about $160 billion worldwide being spent on broadcast advertising, compared to just $5.4 billion in IP-delivered video. But a rapidly growing number of connected devices will soon disrupt what we think of as TV advertising, by combining TV-sized reach with all the interactivity, targeting and analytics advertisers have come to expect from web video ads.

The online video ad market has grown substantially over the last few years, but so far it has yet to really make a dent in TV advertising. While the TV ad market is growing more slowly than online on a percentage basis, it continues to add billions of dollars every year, compared to just the hundreds of millions that are sneaking into online video. For those that thought online video would soon begin to steal budget away from TV, that hasn’t happened — yet.

But things start to get interesting when TVs get connected and more of the video we watch is streamed rather than delivered over traditional TV broadcast. As seen in the graph below, the real opportunity for advertising growth is in targeting that increasingly influential medium. The graph, which is based on data from Booz & Co. projections for the video ad market, was first shown to me by Videoplaza CEO Sorosh Tavakoli as evidence of where the “TV ad market” is actually going.

Advertising for video on PCs and web browsers, video delivered to mobile devices and video delivered to tablets will all grow significantly in the coming years, but will pale in comparison to the growth of advertising for streaming video on connected TVs. And as monetization of streaming video to connected devices grows, the share of ad dollars going to traditional TV services will shrink.

That’s where companies like Videoplaza come in: By serving as the go-between for media buyers and consumer electronics manufacturers and streaming services, they can meet the unique demands of ads built for TV, but with all the bonuses of IP delivery. They will be able to combine the reach of broadcast TV with the interactivity, targeting and accountability of web-based advertising, agencies and brands will get the best of both worlds. They will be able to serve into multiple video platforms and formats across consumer electronics manufacturers. And they’ll enable performance-based campaigns that also scale beyond what is a fairly limited web video market today.

For its part, Videoplaza already enables advertising on devices like the Sony PlayStation 3, (s SNE) Samsung and LG TVs, the iPhone, iPad (s AAPL) and Android (s GOOG) mobile devices and IPTV platforms in France. While focused primarily in Europe, the company is rapidly growing worldwide.

But it’s not alone: All the major ad networks are looking for ways to expand beyond delivering ads into the web browser and onto a growing number of devices. With so much future money at stake, it’s no wonder that connected TVs will be at the center of many ad technology company strategies going forward.