What is AVOD – Why is it booming

In the VOD industry, Advertising Video On Demand (AVOD) is gaining traction. The advent of prominent AVOD players like Hulu, Roku, Pluto, and Tubi has tipped the balance away from SVOD to AVOD.

In order to drive profitability and increase audience engagement, prominent streaming services are slowly transitioning to ad-based monetization. Roku has been investing in original content to draw more viewers. Pluto TV is also adding more free channels to its list.

Prominent CTV manufacturer Samsung with a presence in millions of living rooms, is also raising its investments in the AVOD industry. Apart from its ACR (Automatic Content Recognition)  that measures exactly what programming and advertising are showing on the Samsung TV screens, Samsung is also expanding its own AVOD service – Samsung TV+.

AVOD has also proved to be a great monetization model for content creators with a lot of views, but not sure if people will pay to view their videos. In addition to encouraging independent content creators, AVOD allows ad-supported TV content to thrive in the streaming era. Shows that were made a decade ago are still adding revenue to their owners – thanks to AVOD.

Is AVOD set to dominate the OTT Space?

According to a study by Omdia, AVOD streamers are projected to grow over the next three years, with earnings of about $260 billion by 2025. While SVOD income will not come close to global pay-TV revenues in the next five years, the ad-supported market will surpass it by the end of 2022 with expected revenue of  $174 billion.

Traditional TV is already disappearing and will not make a comeback any time soon. Undoubtedly, OTT is the future of media and it is gradually dissolving traditional television. 

AVOD has already captured a large portion of the streaming business and is growing faster than before. Take, for example, Hulu and Roku, both are highly profitable and are steadily growing. 

AVOD is filling the void between an ad-free experience provided by subscription services and linear TV as AVOD has the strategic benefit of both:- the content is streamed on-demand, there are many options, and most importantly, it’s free.

The catch is just sitting through ads, and the ad load is lower than the traditional TV. Moreover, having access to dozens of networks and shows (with cable and SVOD) that someone never watches is pointless. This is why AVOD appears as a better alternative for viewers on a budget.

In a highly congested OTT space, content creators constantly battle for user attention. And the users have more and more options to choose from. In an environment where there is a lot of free yet premium content available, viewers naturally do not want to pay. This is why many subscription-based OTT services are moving towards ad-based monetization.

What makes AVOD a dominant player in the OTT space?

According to Tivo’s Video Trends Report for the first quarter of 2020, 

• Over half of viewers said they don’t mind ads or even like seeing ads when watching TV – especially if it supports free content. 
• Most people will choose the ads if the choice comes down to a higher price or sticking with ads. 
• Over half of survey respondents said they are not interested in paying more for ad-free content. 
• Only 26.3% indicated they would be willing to pay more for an ad-free experience.

How money is spent on OTT Advertising

According to a Business Insider report, marketers paid $19.9 billion upfront in the 2021-2022 television season. This is up by 7.6% from the previous cycle. 

CTV advertising has outperformed all pre-pandemic forecasts and is now one of the fastest-growing markets. 

Why do advertisers prefer OTT?

There is less ad clutter with AVOD than with television. The number of commercial minutes per hour is lower in streaming. For example, Peacock on NBCU has less than five minutes of ads each hour. Hulu has 9-10 minutes every hour, but HBO Max may only have two to four minutes. On the other hand, Linear television can have up to 15 minutes of non-programming content per hour. 

The lower the number of advertisements, the higher the commercial awareness among viewers. Moreover, the ability to track user interactions such as clicks, pauses, skips, and mutes helps the advertiser understand if a campaign was a hit or miss.  Furthermore, traditional TV ads are not user-specific. The spending on ads could be an absolute waste. On the other hand, streaming is a one-to-one experience, and with advanced targeting abilities, the advertiser could directly talk to the viewer.

What is Ad Targeting? 

Aiming ads at specific groups of viewers is ad targeting. This grouping could be based on their geography, viewing preferences, or even based on the content watched.

• Geographic Targeting: Ads are played only for viewers from a certain geographic region like a city. Small businesses can also take advantage of AVOD ad geotargeting by promoting their business only in the region where they exist.
• Demographic Targeting:  Ads can be targeted based on user demographics such as age and gender. This ensures the ads reach the right audience
• Contextual Targeting: Ads can be placed only on videos of a certain genre or category. This targeting when further narrowed down with other targeting options proves to be the most successful.
• Restricting user frequency: The advertiser can also restrict how frequently a user can see their ad across various content types. This is definitely hard to achieve in traditional advertising. 

Tracking engagement is what makes AVOD advertising all the more effective for marketers. It helps them make informed decisions and experiment with strategies. 

A highly sophisticated tracking system and analytics engine are what an AVOD service needs to win more advertisers as well as create content that their users enjoy the most.

After all more user engagement and watch duration (percentage of video viewed) is what helps them with user retention and ads acquisition. This is the key to success in a growing AVOD market.

Conclusion 

The future of AVOD appears promising, however, the model is still relatively new. Viewers demand a high degree of quality in their content experience, which subscription-driven companies like Netflix have nailed.

To compete with the SVOD giants like Netflix and Disney+, AVOD platforms will need to continue to improve their user experience. Therefore these platforms will need to focus more on their content and technology stack.