Smart TV Makers Wedging Themselves Into Growing AVOD Market: Futuresource

The smart TV has become a battleground for the advertising-based VOD market, said a December Futuresource report. Smart TV brands are placing themselves in the center of the AVOD landscape, with LG developing LG Channels, powered by Xumo and Pluto TV with 190 channels, and Samsung offering its TV Plus service with 160 free channels. Samsung’s 165 million smart TVs and LG’s 100 million-plus will be significant drivers of AVOD in Europe, it said, while delivering ongoing service revenue to the TV makers.

Major media companies’ repositioning of AVOD offerings within their distribution strategies resulted in new partnerships, key content deals and technological improvements that stepped up the AVOD user experience, Futuresource said. The new wave of free ad-supported television channels has expanded the definition of AVOD, it said, citing Pluto TV, Xumo, Tubi and The Roku Channel as services that offer curated channel electronic program guides supported by VOD programming.

The value of the AVOD market is expected to grow by at least 50% this year, with new-wave services topping $1 billion in revenue, not including Roku, which reaches 54 million U.S. households, Futuresource said. Content availability and quality will grow, with potential for more AVOD originals, said the report. Ad effectiveness will improve due to scale and technology advances, and the segment will establish itself as a key component of media companies’ direct-to-consumer strategies, which could lead to more acquisitions and hybrid models, said the research firm.

AVOD moved to a new level last year due to company investments, mass market uptake in the U.S. and strong revenue growth, said Futuresource. The research firm estimates four in 10 U.S. online households regularly use one of the “new wave” of AVOD services, up from a third in 2019. Uptake has been slower outside the U.S. due to complex local broadcast, distribution and advertising landscapes, it said.

Traditional AVOD services, including YouTube and Hulu, continue to grow. YouTube’s 2021 revenue is on course to exceed $20 billion this year, said the report. Social media video advertising revenue is on the rise and “significant.” Facebook’s total ad revenue for 2020 was about $80 billion, it noted. New services will emerge in the space, and consolidation is likely, said the report.

Content holders increasingly see AVOD as an important component of their future revenue streams, Futuresource said. An “ideal white space” exists for the category between the shrinking broadcast TV segment and subscription VOD services such as Netflix, Amazon Prime Video and HBO Max. Content holders also have to weigh business models and the possibility of devaluing monetizable content, it said. AVOD can be a way to monetize lower-value or dormant content without compromising any other arrangements or revenue streams.

Most AVOD content is nonexclusive, which could be seen as a model to deliver “quantity over quality,” Futuresource said, but it noted ViacomCBS’ Pluto TV is looking to boost the quality of its offerings. The service negotiated a deal for Narcos, for instance, while NBCUniversal’s Peacock negotiated a third-party deal with Pluto TV to stream classic movies such as The Godfather. The breadth of curated content over Pluto’s 250 channels means there’s “something for everyone.”

Media companies are moving toward hybrid models, such as NBCUniversal’s SVOD/AVOD approach with Peacock TV and Xumo, Futuresource noted. HBO Max is looking to add a basic free tier this year, and Viacom has a direct-to-consumer strategy to reach a broad audience: CBS All Access will become SVOD service Paramount+ next month, complementing the ad-supported Pluto.

A hybrid approach creates an upsell opportunity while still generating revenue, said Futuresource, crediting Spotify with making the model successful for music streaming. Over 55% of Spotify’s global users are on its free tier, though advertising accounts for less than 10% of revenue. On the flip side, Netflix’s popularity with consumers is due partly to its ad-free model, showing there’s demand for both models, it said.