The entertainment industry has seen massive growth and transformation over the past decade due to changes in technology and consumer behavior. One of the key trends that has emerged is the rise of AVOD (advertising video on demand) services which allow users to watch free content in exchange for watching ads. These services have disrupted the traditional pay-TV model and are competing strongly with subscription video on demand (SVOD) players like Netflix. Let’s take a deeper look at AVOD services and their potential to become a dominant force in the entertainment world.
The Growing Adoption of AVOD Services
With the proliferation of streaming devices and rising popularity of online viewing, users are increasingly cutting the cord from expensive cable packages. According to estimates, around 26 million households in the US were cable TV cord cutters or cord nevers in 2021. This shrinkage of the traditional pay-TV market has opened up opportunities for AVOD services to attract these viewers. Services like Pluto TV, Tubi, Crackle and Plex have seen rapid user base growth in recent years as they offer ad-supported content for free without any subscription fees.
Pluto TV, one of the leading AVOD players, currently reaches over 70 million monthly active users globally. They have emerged as the third largest streaming service in the US after Netflix and YouTube. Likewise, Tubi has grown to over 33 million active users and streamed over 2 billion hours of content. The popularity of these services shows that viewers are increasingly open to watching ads in exchange for free entertainment options. As cable cutting continues, AVOD services stand to gain significantly.
Securing Valuable Content Library
A key factor driving the success of AVOD platforms is their ability to offer expansive and engaging content libraries to users. Significant investment is being made towards acquiring media rights from major Hollywood studios and networks. For example, Fox Corporation has partnered with Tubi to make over 20,000 titles from its library available including shows from FX, 20th Century Fox Television and more.
Likewise, Paramount Global struck deals to bring thousands of movies and TV shows from studios like Paramount Pictures, CBS, Comedy Central, Nickelodeon and others to Pluto TV. Such tie-ups allow AVOD services to build media catalogs capable of competing with big SVOD platforms. They can offer popular movies, TV series, news, sports and other programming to attract and retain broader audience base. With content rapidly becoming the focal point, more content deals are expected between traditional media houses and these advertising-supported upstarts.
Monetization Through Sophisticated Ad Technologies
While a free experience is the core value proposition of AVOD platforms, their business model depends on successfully maximizing ad revenue. To improve monetization rates, these services are investing heavily in data-driven ad technologies to deliver personalized ads. Tools such as machine learning, first-party data integration, and contextual targeting are being deployed to serve hyper-relevant ads aligned with viewer preferences and content being watched.
For instance, Pluto TV aims to personalize every ad slot using its predictive platform. Real-time bidding also allows the platform to auction every impression to the highest bidder from among advertisers. Such precision targeting helps drive better engagement and cost-per-mille (CPM) rates which translates to higher yields for the platforms. As ad experiences get smarter, monetization capabilities of AVOD services will keep enhancing allowing them promising scaling potential from a profitability standpoint.
Competition with SVOD Platforms
While AVOD services brought back the ‘free’ aspect of television that many desired, subscription VOD platforms like Netflix, Disney+, Hulu can deliver a more premium ad-free experience with original quality content of their own. This has led to somewhat of a ‘tug of war’ between the two business models for eyeballs and mindspace of viewers.
To stay competitive, AVOD players are also stepping up investments in exclusive original programming. Pluto TV has committed over $500 million towards developing new shows and films. Plex has financed a dozen scripted and non-scripted series for its free service. Such differentiation is important for AVOD services to broaden appeal beyond just being a utility for catch-up TV. Providing distinctive ad-podded content can help them co-exist viably alongside SVOD in the media landscape. However, replicating the scale and quality of SVOD catalogs remains a challenge for ad-based models to tackle.
Prospects for Future Growth
While an estimated 65% of US households continue to subscribe to linear TV/pay-TV services showing the staying power of traditional models, the rise of cord cutting paired with cheap/free over-the-top (OTT) alternatives will likely sustain the momentum of AVOD streaming. With an expected CAGR of over 15% till 2027, the global AVOD streaming industry could grow to be worth close to $50 billion in revenue by the end of this decade according to market forecasts.
As content ownership continues to consolidate in the hands of a few media giants, partnerships between AVOD services and major Hollywood players may also intensify. With more media companies expected to steadily migrate parts of their libraries to advertising-supported platforms, the potential to scale customer base multi-fold remains strong for AVOD players of today. Combining lean-back television style experiences with personalized interactive ad technologies promises a profitable hybrid model poised for enduring mass adoption. The emergence of AVOD therefore represents the next step in television’s evolution.
In conclusion, the rise of advertising-supported streaming services offers a compelling alternative for viewers seeking quality entertainment without subscription fees. Backed by significant investments and strategic content tie-ups, AVOD services have achieved scale rapidly. As their capabilities in content, personalization and targeted monetization keep enhancing, they are well positioned to emerge as a powerful third force besides traditional pay-TV and SVOD models in the longer run. The coming years will be defining for the AVOD category to further cement its place under the sun.
*Note:
- Source: Coherent Market Insights, Public sources, Desk research
- We have leveraged AI tools to mine information and compile it
