What is AVOD and What do I Need To Know To Make It Work?

As the demand for content grows exponentially, there is much discussion about the method of delivery for video on demand (VOD) and which monetisation strategy will work best for operators. VOD is a service that offers viewers a way of watching videos online when and wherever they want. There are different strategies for monetising VOD delivery including SVOD, AVOD, and TVOD. 

Currently, along with questions about how to offer a more customised experience for customers, SmartLabs is getting more requests about AVOD than ever before. So what is AVOD and how does it differ from TVOD and SVOD?

What is AVOD and how does it differ from TVOD and SVOD?

AVOD stands for Advertising Video on Demand. It is a monetisation strategy where customers watch content for free but are shown ads in breaks in the content stream. It differs from SVOD (Subscription Video on Demand), which is a contractual monetised model where operators charge a monthly or annual subscription to customers. TVOD (Transactional Video on Demand) is where users pay to download a piece of content. Most people think of SVOD as the most common service and this can be used in conjunction with TVOD. AVOD traditionally is used more on mobile devices so is often found on social media channels, where video content is shown.

Globally, where is AVOD popular?

AVOD tends to be more prevalent in countries where the mobile network is key to transmission rather than a fibre network. SVOD is a stronger option in regions where users have more disposable income, as it requires the consumer to pay a monthly subscription. TVOD is more of a complimentary service and works as a standalone service on different devices alongside both SVOD and AVOD. 

What content is suitable for AVOD?

AVOD is a good option for everything except blockbuster movies, new content and popular content where there is a famous actor or celebrity involved. For content types like this, SVOD is usually a better option, as the cost to show the content would be prohibitive on an AVOD contract. 

AVOD is particularly good for older content and less professionally produced content. It is also extremely suitable for operators or content providers who have a wider variety of content such as catch up content, TV content and influencer content, such as vlogs from young celebrities. 

Who can use AVOD?

AVOD is great for content aggregators who have lots of content coming from different sources, and great for broadcasters who have old and new content. It is also great for studios and producers as their content catalogues are huge.

When is AVOD useful as a revenue stream?

AVOD is very suitable for free to air TV channels and can provide a good revenue stream. Some content is more suitable for AVOD, such as longer content and older movies as there is enough time to show enough ads as part of the package to justify the cost. If AVOD is used for shorter content, such as a 3-4-minute video, there will only be time to show one or two ads. 

The operator needs to understand its target audience for AVOD to work well as a revenue stream. Key considerations include viewing habits, disposable income and device set up before making a decision on which VOD system is the right fit. In particular, the operator needs to consider whether a mobile or TV is likely to be the primary device to view the content. Younger viewers are more likely to watch long-form content on a mobile, so AVOD particularly suits them. However, they tend not to have much disposable income. 

Older audiences, on the other hand, prefer to watch short form content on mobile devices, but watch longer content on a smart TV or via an IPTV/OTT service. This type of viewing suits the SVOD model better, although the amount of short to medium content being watched on mobile is increasing with this older demographic. 

Has Covid had an influence on the VOD space?

The Coronavirus pandemic has led to all sorts of changes in consumer behaviour. The absence of external entertainment, such as concerts and theatres, has led to people watching more content on all types of screens and devices and we have seen AVOD being used more with this additional demand. Where the free content providers that use Smart TVs and OTT set top boxes have been finding older content to show, other channels that are ad-based, have been using older content in an AVOD set up with contextual based advertising. 

Can you blend the strategies?

Some operators are worried about mixing the technologies, particularly AVOD and SVOD, but if you get the balance right between audience, viewing habits, disposable income and device set up, you can manage the strategy combining AVOD, SVOD and TVOD as required.

Isn’t YouTube what AVOD is for?

YouTube is full of content and a lot of it is not professionally produced. The broadcast industry tends to refer to it as brand, cat and dogs content. On YouTube, there is a mix of content in topic and types from short clips to longer features. If you are a professional TV content producer, you don’t want your professionally produced content to be shown next to a fan vlog on Jennifer Lawrence’s best falls or a video of a fanatic dog owner showing off their pride bitch and pups.

For some content producers, broadcasters and studios, using YouTube would or could diminish their brand. Additionally, if you are a content creator and your content is popular, you want to drive users to use your platform, because as well as controlling how the content is distributed, you can collect more data on how it is being consumed. The collection and analysis of data means a better and more profitable business model in the long run, whether for AVOD or SVOD.

Is AVOD all about data?

With AVOD, you can find out more about the user. By combining data from the IP address and using a unique identifier for the device the video is being watched on, you can tell someone’s age, details about their household, the number of devices they have and sometimes even a person’s fitness levels and  weight. The IP data gives contextual history so can add more to the behavioural data available.

The IP data is the same information that is used for remarketing campaigns where users have looked at a website and then ads appear for the subject or product for which they have been searching. Ad streaming is a mature industry but the video part of it is a little behind with its targeting algorithms. It is moving fast to catch up though. DTV Research says AVOD will grow at 17% through 2024, from revenues of $36 billion in 2018 to $87 billion in 2024.

Another tech challenge is that AVOD is cross-platform and so operators need to ensure they can serve the ads and make them look good on different devices. In the past, this was a lot harder to do and although it is getting easier, it is still a consideration if you are considering the AVOD path.

As with the online advertising market a few years ago, the AVOD market is about to become more complex for scheduling ads available while maintaining a profitable CPM (cost per thousand impressions).

In addition to complicated bidding systems or water falling, a method to sell the ads being put in place, there are additional considerations when considering video. Plus, there could be a question of supply and demand, depending on where you are in the world as the demand for adverts outstretches the number of ads available. Managing schedules while maintaining a profit is a job in itself. 

What about future tech?

When it comes to AVOD, a cyclical pattern should be followed. Operators are proactively looking to provide programs and channels that they know their customers will watch. They want to give the best customer experience, so there is less churn. Simultaneously, the operators collect data about usage to share and negotiate with advertisers for future activity. The more information about a viewer an operator has, the more it can share these demographics with advertisers, and the more money they are willing to pay.

This differs from how this information is used in an SVOD system. The information is collected for future program/ channel choice and as a value add in the recommendations feature. The collection of data is used to suggest other pieces of content as part of the EPG, with a pop-up at the end of a programme suggesting other programmes to watch. 

In the not too distant future, many of these decisions will be able to be made by Artificial intelligence (AI) systems. Already, AI can understand the context of video that has been viewed and intelligently tell ad systems to deliver suitable and relevant ads.

What is AVOD’s biggest challenge?

AVOD’s biggest challenge is ad blockers, where 30% of revenue is blocked. To counter this, there are companies that offer technology to block the ad blockers. What this means for AVOD suppliers is the restriction of the data collected. A reduction in revenue is a huge concern when your system is based purely on ad revenue.

What about compliance?

AVOD systems may have to operate in a tightly regulated environment. Industry bodies, such as the IAB, may respond to complaints about the nature of adverts shown. Additionally, social channels that show content, such as Facebook and YouTube, have their own policies to ensure data collection and use are legal.

Conclusion

For operators that are in a space where Netflix, Disney +, Apple TV and Amazon Prime are grabbing market share, AVOD might be what you are looking for to provide an additional revenue stream.

AVOD generates free traffic and its biggest benefit to operators is the ability to pick up user data, which can be used to perfect an SVOD offering.

Running AVOD for older and catch-up content and SVOD for new content is more likely to become the norm, where the tech infrastructure supports this. But it is crucial to get the content type and mix right at the outset.