COVID-19 Spurred AVOD's Growth Amid Flurry of Big Media Plays, Parks Event Told

Ad-supported VOD services are playing a pivotal role in delivering a relaxed, “tension-free” viewing experience during the pandemic's “troubling times,” Parks Associates analyst Steve Nason told his company's Future of Video virtual conference Wednesday. Acquisitions in the AVOD space by prominent media companies included Pluto TV by ViacomCBS in 2019 (see 1903040002), Xumo by Comcast in February (see 2002250059) and Tubi by Fox in April (see 2004200070). The transactions all raised the overall profile of the AVOD category, said Nason.

Pluto TV became the free pillar in ViacomCBS’s three-tier streaming strategy, and Showtime announced this month 250 hours of original content that will be available on the AVOD service, Nason noted. ViacomCBS is looking to evolve Pluto, not just as ad-supported TV, but to be a gateway to other paid streaming media properties in its portfolio, Nason said, referencing the premium Paramount+ service coming next year.

Xumo had notable increases in monthly active user growth after Comcast’s buy, reporting it more than doubled MAUs from the beginning of 2020, fueled by the COVID-19 crisis, said Nason. The streaming service recently pivoted its content focus to exclusives as a differentiator, inking an exclusive deal with Bold Soul Studios to premiere the movie White Elephant in November, along with films from Magnolia Pictures.

Fox had been mostly on the sidelines of the over-the-top video market before it bought Tubi, Nason said. Since the acquisition, Tubi has continued to grow its user base and content library, focusing on curated collections. Tubi is trying to differentiate by moving “beyond the first phase of ad-supported services that are simply reservoirs for licensed content and move to branded content, including assets under the Fox umbrella,” said the analyst.

NBCUniversal further disrupted the ad-supported OTT space this year, launching the hybrid Peacock service first through Comcast and Cox customers, then broadly in July. NBC has a multipronged strategy, focusing on free content through an ad-supported tier, offering a “slow-and-steady approach” to building a paid subscriber base while building ad impressions and revenue, Nason said.

Peacock has taken a “house of brands VOD approach taken by many” but also added curated channels of content across its properties, along with licensed content from other providers in a live, linear module, Nason said. It also licensed content from outside providers, including rival ViacomCBS, he noted, and is innovating in ad formats in hopes of reaching a young “ad-averse” demographic.

There’s no clear leader as the AVOD market continues to develop. Parks believes AVOD will continue to gain on subscription VOD services as they offer more exclusive content and other benefits to attract customers. Among U.S. broadband households viewing AVOD services in Q3, 9% watched Pluto TV, 8% The Roku Channel, 7% Tubi TV and 6% Peacock, said Parks.

Tubi had been seeing a rise in user engagement even before the pandemic, said Vice President-Business Development Andrea Clarke-Hall: “The pandemic accelerated what was already happening.” AVOD services had a spike in viewership in March, then a “huge spike in return viewers every month since,” she said.

Ad-supported video is like a return to the past of broadcast TV “but with completely new technology,” said Paul Finster, MediaKind vice president-innovation and webscale sales. Streaming technology and ad insertion are making a one-to-one targeting opportunity possible. “With that capability comes perhaps higher" cost per impression and the ability to monetize individuals’ accounts at a higher rate than broadcast, he said. Growing numbers of AVOD viewers are enough “to make the ad model work.”

The ad experience in AVOD has to work for consumers to be successful, said Stefan Van Engen, Xumo senior vice president-content programming and partnerships. AVOD services typically have a smaller ad load than broadcast TV, he said. A better overall user experience is key to driving engagement, and personalization goes a long way toward that, he said.

Henry Embleton, head-ad products and revenue at hybrid AVOD-SVOD anime streaming service Crunchyroll, said targeting is key to an optimal ad experience, which can inform, inspire, educate and save viewers money. He conceded there are still “gremlins” in targeted ad technology that might result in a viewer being served four ads back to back. Those issues need to be fixed, he said.

Embleton attributed the rise of AVOD to the improved experience it offers over the traditional free-TV model. Pay-TV services are expensive, and viewers can’t watch what they want when they want, he said. But streaming services have challenges, he said: “It’s gone from aggregation to a siloed media experience from the individual brands, and now it’s gotten too fragmented and too siloed,” he said. Trends are moving back to aggregation but in “a different version,” he said, citing The Roku Channel.

The broadcast advertising business was hurt by COVID-19, largely due to sports shutdowns, but on the streaming side, “everything seems to be full steam ahead,” said Finster. Many sports leagues are looking to go direct-to-consumer and are exploring global distribution; many will lean heavily on advertising, he said. The pandemic accelerated technology discussions that were already happening on streaming and advertising, he said.

Advertisers faced challenges in budgeting and messaging as they navigated marketing to consumers during a pandemic, noted Van Engen. They had to modify their creative to fit the times, he said: “If you’re selling beer, and you’re selling beer with a commercial where everybody’s in a bar, that’s hard to do when everybody is at home.”

Consumers can easily sample different services in the ad-supported space, Nason noted, saying there’s “ample opportunity” for providers to carve out a leading position with differentiated content and a seamless end-user experience. Services that can stand out have the best chance to gain share, he said. They also need a “frictionless” ad experience to draw in, engage and retain viewers, he said.

Parks data shows SVOD services including Netflix, Hulu and Disney+ have higher user satisfaction levels than AVOD services Tubi, Pluto TV and Crackle. Consumers are loyal to the services they've made a financial commitment to and where they perceive value, Nason said.