Networks pitched their ad-supported streaming services at this year’s NewFronts and Upfronts as a way to continue to reach audiences. Their efforts build upon a massive shift in viewing behavior fueled by the COVID-19 pandemic.
But for ad-based video on demand (AVOD) to succeed, providers need to deliver better ad experiences that include relevant targeting as well as personalized content that’s easily discoverable.
Sixty-two percent of consumers reported watching subscriber-supported video-on-demand in 2020 compared to the 32% that watched AVOD services, according to a new report by PricewaterhouseCoopers that surveyed 1,000 consumers.
The breadth of content continues to be a major factor among consumers in choosing a streaming service, and most don't want their viewing experiences interrupted by ads, leading to their preference for SVOD over AVOD.
But as consumers max out on content in SVOD services, they may seek variety through AVOD.
“While consumers prefer ad-free content, the consumer appetite for more variety in content will make AVOD a viable option,” said Seraj Bharwani, CSO of AcuityAds.
There is some data suggesting this expansion into AVOD is happening. According to eMarketer, ad-supported viewership increased 6% from January 2020 to 34% in January 2021, though ad-free streaming services like Netflix and Disney Plus continue to dominate the market.
Advertisers want content where they can place ads: Ad spend in CTV/OTT is expected to increase from $8 billion in 2020 to more than $11 billion this year, while SVOD revenues are expected to leap 10% to $81 billion by 2025, according to PwC.
“AVOD definitely has a role that's continuing to improve and carve out a portion of the market, but I still think you're going to see SVOD dominate the landscape,” said Gregory Boyer, technology, media and telecommunications partner at PwC US. While AVOD viewership has room to grow, “subscriber models [will] have heavier numbers,” he said.
Personalization is key
The value exchange between ads and content is clear to consumers in streaming: The report found that 63% of respondents said they’d be willing to see more ads if it meant paying less for a subscription.
And according to a report last month by Verizon Media and Publicis Media, three-in-five of the 3,000 viewers surveyed said they would prefer more ad-supported subscription tiers. AVOD services that fit that mold include Hulu, Peacock, Paramount Plus and Roku.
However, bad ad experiences such as long commercial breaks and repetitive ads can drive viewers away, and 23% of AVOD subscribers said that they switched to SVOD services as a result.
According to PwC, 72% of viewers said they’d prefer to see fewer ads that aren’t interesting to them, and a little more than half of the respondents said that they were willing to share personal data if it meant seeing relevant ads.
Boyer said that personalized ads are critical for AVOD platforms as well as SVOD providers looking to offer cost-conscious consumers alternatives through hybrid models.
PwC recommends providers use advanced algorithms to target ads, measure viewer engagement and provide a feedback loop to brands. In addition to demographic and behavioral data, the report also called for exploring algorithms to present ads based on time of day, device being used and length of desired content.
Creators, meanwhile, can use viewer data to craft more appealing ad formats.
Streaming services have been touting innovative ad tech capabilities to attract both advertisers and viewers. Last month's NewFronts and Upfronts presentations emphasized quality programming above all, but also a slew of new ad products and other solutions around targeting, measurement and frequency management, as well as curated content offerings.
“Providers are going to have to tweak AVOD so consumers can have a really good experience, with ads that are more relevant,” Boyer said, adding that it’s still early to optimize that experience for streaming. “All of them are trying. We will see more advancements in the use of data and analytics because that’s the key in personalization.”
Personalization can also make it less daunting to find which content to watch.
With a slew of streaming services out there – five new streaming services, including Paramount Plus, Discovery Plus and PrendeTV launched in the past year – 29% of respondents said they were often “frustrated” or “overwhelmed” by the array of choices offered.
Additionally, 31% said that easy, personalized content recommendations would be a reason for staying with a particular platform.
PwC said providers need to think about how their customers will search for — and easily access — the content, either through better user interfaces and discovery capabilities, or by offering recommendations beyond their own platforms as more content is moved into walled gardens.
Consumers used an average of eight streaming services in 2020, up from six the previous year, accessed through devices and apps such as Amazon Prime, Apple TV, Roku, and others. But subscribers’ pockets aren’t bottomless.
“You’re going to see subscription fatigue probably coming out of the pandemic, as consumers become more inclined to go outside and do things,” Boyer said. “People are going to find that they don’t use all of those streaming services.”
That will lead more pure-play SVOD services to roll out AVOD offerings – such as HBO Max, which launched its $9.99 ad-supported service on Wednesday and claims to have the lightest ad load in streaming – and boost their revenues.
“Streaming is still going to be a huge growth area and the future of TV,” said Boyer, who added that media consolidation could also change the landscape. “You are going to see more AVOD options.”