Subscription, Ad-Based, Transactional Video Fit Into Hybrid OTT Future: Parks

Ad-supported and transactional VOD models are growing as a way for over-the-top video providers to differentiate in an “incredibly crowded” streaming market, said Parks Associates analyst Jennifer Kent, opening the company’s online Future of Video event Tuesday.

Kent referenced “hundreds” of streaming video services in the U.S., with all types of business models benefiting from a “massive increase” in OTT service adoption spawned by stay-at-home COVID-19 trends. The SVOD model leads the market by far, but AVOD and TVOD services have seen a significant uptick in users; 44% of OTT customers said they used an AVOD service in the past 30 days, up from 28% in 2018. One in five said they used a TVOD service, double that of 2018.

Hybrid models using a combination of subscription, ad-based and transactional models are emerging as a way to grow users and content libraries while monetizing the business, Kent noted. SVOD and pay TV remain the first service type consumers turn to when looking for content, with ad-based offerings supplementing the pay model, she said. That could change as ad-supported services expand their interfaces to resemble a content hub. She cited The Roku Channel and Samsung TV Plus, saying they are “primed to become primary services in the future.”

Nearly a third, 31%, of OTT households watched ad-supported content in Q1, up from 24% in 2019 and 25% in 2020, said Kent, calling ad-based services increasingly “foundational” in the market. “As ad dollars have transitioned from pay TV to online video, ad-based service providers see an opportunity to capture revenue from content owners seeking distribution deals as traditional pay TV declines.”

While the SVOD market leaders -- Netflix, Amazon Prime Video and Disney+ -- are locked in for now, the ad-based OTT market is “still up for grabs,” Kent said. ViacomCBS’ Pluto TV has a slight lead among free, ad-supported streaming TV (FAST) services, ahead of Tubi, The Roku Channel and Peacock’s free-tier. Services including Amazon’s IMDb, Roku and Crackle are stepping up investment in new and original content to provide value-added content not associated with those types of services, she said.

A Parks survey found 65% of customers use an ad-supported service to access specific content, Kent said: “Ads are not a barrier if consumers are interested in specific programs.” Light users are attracted by the price point; heavy users say they’re motivated by ease of use: Some 46% said ad-based services are easy to use. A third of respondents said they use FAST programming in a lean-back way to “kill time”; a quarter said the service feels “familiar,” like a traditional TV service, Kent said.

Though FAST service customers showed a comfort level with ads, they also were open to paying a monthly fee for their most watched shows, if it meant viewing ad-free. There’s “strong potential for free ad-based services to upgrade subscribers to a tier without ads,” Kent said: as 79% of ad-based service users said they would pay $2 a month for an commercial-free subscription; 60% said they’d pay $5.99 monthly for the ad-supported service they watch most often, on par with fees for Hulu and Paramount+.

Viewers watch transactional video less frequently since movies or concerts are single-time events, but 53% of respondents said they rented or bought an OTT program in the past 30 days. Kent attributed the uptick to shifts in traditional content windowing as some films debuted exclusively or simultaneously on transactional services due to COVID-19-related theater shutdowns.

Transactional video users are likely to also use ad-based services, Kent said, indicating that viewers “averse to monthly subscription fees may buy or rent individual titles” while accessing ad-based services or on demand libraries on live linear channels. The hybrid model is easy to promote, she said. Vudu shows ad-supported titles, along with programming available for rent or purchase, and Amazon’s Prime Video transactional function provides exposure to its IMDb TV “that’s featured prominently on the interface.”

Amazon, Google and Apple lead the transactional marketplace. Their market share could increase further since the PlayStation store no longer offers movies or TV shows as of August, the analyst noted. On the other side, movie chains AMC and Alamo Drafthouse Cinema have launched their own transactional TV services “to recoup dollars lost when theaters shuttered,” Kent said. Consumers are regularly exposed to a variety of ways of viewing content, and they're paying for it, she said.

Other hybrid approaches include ABFF Play, spun off of the American Black Film Festival, which offers coverage of events, short films, podcasts and other branded content, Kent said. The transactional arm was integrated to drive on-demand rentals and independent events including standup comedy, stage productions and concerts. The hybrid approach gives the content owner the flexibility to vary monetization models based on the type of content it has to offer, she said.

The U.K.’s Royal National Theatre offers SVOD and TVOD services, with the subscriptions covering the bulk of content, while a few “top-shelf” titles can be monetized separately, Kent said. The dual approach gives the service provider a chance to “build up the core subscriber base but also add incremental revenue and users with exclusive titles for rent,” she said. OTT services that offer event-based programming lend themselves to co-viewing experiences with others in and outside of the core household, Kent noted.

On emerging revenue models, Kent referenced virtual MVPD fuboTV, whose betting arm launched last month in Iowa, enabling subscribers to place bets on college and professional sports. Netflix gaming launched last month, and though it’s not currently being monetized, it “gives the streaming giant a foot in the door of the games subscription and cloud gaming wars alongside Google and Apple and Amazon,” Kent said. Netflix gaming is also a step toward a future media strategy that “includes more immersive entertainment options.”

Commerce fits into the future of streaming, too, Kent said, citing a Netflix and Walmart partnership, where the retailer is the exclusive shopping hub for all Netflix merchandise. Transactional commerce will enable viewers to shop directly from a connected TV platform, Kent said, saying some services are integrating with social media and influencers “to take viewer engagement to the next level.”