Advertising Video on Demand – To AVOD or avoid?

As most movie and TV streamers can attest to, Subscription Video on Demand services (or 'SVODs') continue to multiply.

No need to put the kettle on while the adverts play; SVODs offer consumers an instant, ad-free escape to worlds unknown at just a click of a button. Is this the death knell for TV advertising? Well, perhaps not… As purses are squeezed ever-tighter with the cost-of-living crisis, and hit shows are spread across the platforms, consumers are re-thinking their multiple subscriptions and are looking for ways to reduce their entertainment spend without compromising on access to quality TV. Enter: Advertising-based Video on Demand services ('AVODs').

What are AVODs?

AVODs offer consumers the chance to access must-see TV at a discounted rate in exchange for viewing adverts. While this is not a new phenomenon, with AVODs having existed for many years, major household name SVODs have only recently started to offer ad-funded packages.

The benefits of an ad-funded package

Cheaper ad-supported viewing options may tackle slow subscription growth post-pandemic. Indeed, there is appetite among UK consumers for more budget options, with a recent survey revealing that 44% of those surveyed would choose to watch 12 minutes of adverts per hour if the subscription was free. In a separate piece of research, it was also revealed that 85% of subscribers to two established SVODs' ad-supported packages are new to the platforms. Cheaper viewing options may also help minimise cancellations (known as 'churn'), with viewers choosing to downgrade as opposed to cancelling.

Advertising contracts will also boost platform revenue. Prior to the pandemic, a major US-based AVOD platform reportedly earned US$15 per subscriber each month on its US$6 ad-supported package, due to its advertising contracts. And businesses are keen to get involved. Given the number of hours people stream every day, ad-supported packages generate large amounts of advertising space for businesses to monetise beyond that offered by traditional broadcasting channels. Indeed, one established SVOD platform had reportedly almost filled its advertising space a month before it launched its ad-funded package. In addition to having more space to advertise, targeted TV ads are also believed to impact consumers more than advertising via online videos, and may help advertisers reach younger generations, who consume SVODs more than traditional broadcast TV. 

A return to simpler times?

AVODs will differ from advertising on traditional broadcast TV. Ad-breaks will be shorter, with approximately four to five minutes of adverts per hour of TV consumed. Advertising will be tailored to the individual consumer's interests, with consumers being given choices not only over what adverts to watch, but when. Advertising may be interactive, increasing consumer engagement through the use of QR codes for shopping various goods or ordering essential movie snacks to your door. Through the use of AI, adverts may also be introduced in the context of the episode itself as opposed to in the traditional separate "ad-break". Rather than repeating adverts, adverts may be "episodic", with streaming services showing a series of linked adverts. For example, with car advertising, different parts of the car may be shown in each episode. Alternatively, similar to Zac Efron and Jessica Alba's Dubai Presents tourism mini-series, each episode could follow different family journeys with the car during which various features of the car are showcased.

Key considerations

From a commercial perspective, in certain markets, particularly the UK, AVODs will have to compete with free ad-funded services offered by established television and online broadcasters. There are also legislative compliance issues to consider. Tailored advertising will require platforms to harness subscribers' data. For example, one platform is asking ad-supported package subscribers for their gender and birthday to offer targeted ads. Platforms will need to carefully consider what data they are collecting from subscribers and how they are using it when seeking to create tailored advertising to ensure compliance with applicable data protection legislation. Advertising regulations also need to be considered. For example, if an advert is being introduced in the context of a programme, how will the consumer know it is an advert? As with influencer marketing in the UK, will adverts need to be labelled "#ad?" The Advertising Standards Authority has previously said it will investigate this type of advertising. Platforms will also need to consider what content is suitable to advertise and to whom. This is especially so when advertising in the UK in light of the draft Media Bill, which seeks to regulate SVOD platforms and ensure greater protection for the audience. 

Conclusion

AVODs are gaining popularity amongst both consumers, who can view quality content for less, and platforms, who benefit from increased subscription growth and revenue. For businesses, AVODs represent a major opportunity to advertise products and services, providing a regular direct link to the consumer. It is estimated that the AVOD market will grow to become a US$21 billion industry by 2025, representing a growth of approximately 205% over the next 5 years. And with the scope for additional commercial add-ons with interactive advertising, there is serious scope for more. Watch this (advertising!) space.