What Advertisers Need to Know About the AVOD Revolution
News of Netflix's Q1 and expected Q2 subscriber loss reverberated through the media world last month, prompting a flurry of speculation as to what this reversal of fortune forebodes for the rest of the TV landscape. Among the many implications discussed, one point of consensus quickly emerged: Subscription fatigue is real — and the fallout is ushering in a transition of power from subscription video-on-demand (SVOD) to advertising-based video-on-demand (AVOD) models.
Netflix's subscriber woes signal the beginning of an industry pivot that has been long in coming. In recent years, the SVOD competitive landscape has exploded. From a consumer standpoint, that's meant greater choice — but it's also meant greater costs and a more complicated viewing experience. Anticipating 2022 as a year of significant SVOD churn, Deloitte predicts that at least 150 million SVOD subscriptions will be canceled this year.
That said, if there's one thing that's not declining, it's consumer time spent watching TV across platforms. Even as viewers look to bring their subscription costs back under control, they'll be looking to access the content they value in other venues.
Given consumers' growing preference for content streaming, AVOD services represent the most likely beneficiary of the SVOD exodus. In fact, according to the MRI-Simmons Cord Evolution Study, only a third of today's adults in the New York market cite fewer or no ads as a benefit to streaming, whereas a full two-thirds of viewers say they prefer streaming free video content with ads instead of paying for a subscription without ads.
So, what do advertisers need to know to capitalize on the forthcoming AVOD boom? Let's look at a few considerations missing from the current industry commentary.
A Global Opportunity with Regional Nuance
For advertisers, growth in AVOD represents an important macro trend that's going to open new opportunities in the coming years. According to Digital TV Research, AVOD spend for TV episodes and movies is on track to grow by 144 percent between 2020 and 2026 to reach $66 billion across 138 countries. Of this $39 billion in growth, the U.S. will contribute an impressive $21 billion.
The trend is global — but harnessing it to great effect will require advertisers to get more granular. While AVOD growth across the U.S. will be impressive over the next few years, regional variations will be important to note.
For example, in the New York DMA, the MRI-Simmons Cord Evolution Study found that the percentage of people over 18 who stream AVOD content grew from 68 percent to 76 percent between 2020 and 2022. Impressively, over the past 12 months, 62 percent of New York viewers have used three or more AVOD streaming services. The median age of these AVOD viewers is 41, with a median household income of $109,000. More than half (55 percent) own homes, and 39 percent have children.
In the New York region, and nationally, the percentage of viewers who have embraced streaming continues to grow. However, to date, many households — including 49 percent of the New York market — watch TV through a blend of corded and streaming experiences. Which brings us to another important consideration around the shift to AVOD environments...
A Balanced Approach Yields Best Results
Despite the rise in streaming, followed now by the rebalancing of the SVOD-AVOD scales, the lesser-discussed reality is that a huge proportion of TV viewers are stacking cable and streaming services these days, rather than selecting one over the other. Advertisers need to recognize that truth by balancing both linear and streaming inventory within their media plans.
Working with partners that can deliver a blend of linear and streaming inventory is the best way for advertisers to align their media plans with current viewing behaviors and the ongoing growth of AVOD content. The right balance of linear and streaming and national and regional inventory will vary according to a given brand's audiences and needs.
Fortunately, there are multiple models emerging in this blended media-buying landscape, including:
- Linear extension, which places an advertiser's streaming ads on the same networks being used for linear campaigns
- Audience targeting, which identifies a brand's audience viewing behaviors and targets them across the content they watch
- 1-to-1 addressable, which applies customer targeting parameters to a blended linear and streaming campaign that ensure the greatest effective CPM
The growth of consumer time in AVOD environments will continue to make headlines this year, as SVOD services like Netflix continue to feel the results of subscription fatigue. Advertisers looking to capitalize on this consumer shift will fare best if they acknowledge it for what it truly is: yet another wave within the ever-rippling ocean of TV viewership. The greatest long-term success will be seen by those who maintain a balanced approach of linear TV and AVOD, capable of riding this wave as well as those still to come.
The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.
Betsy Rella is the VP of research and data at New York Interconnect.