Commentary

How Can 2020 Be Year Of AVOD When Ad-Free SVODs Are Practically Free?

by Dave Morgan , Featured Contributor, January 16, 2020

Welcome to 2020, the year that many folks are calling the “Year of AVOD,” when ad-supported video on demand streaming services become the next new big thing.

I am a big fan of video streaming services. Who isn’t if you like quality TV shows and movies, and like to watch them when and where you want? I am also a big fan of advertising-supported video. Enabling better video advertising is how I earn my living. However, I don’t think 2020 will be the “Year of AVOD.”

There is a big difference between wanting something a lot and having that something actually happen, particularly when massive consumer behavior change is required before it can occur.

I’m not so bullish on AVOD growth this year. I am a big believer that they will be very big five and 10 years from now, but 2020 and the couple of years after are going to be really, really tough for ad-supported streaming services to get real traction — subscription and, most importantly, usage — from viewers in the U.S. Here are three of my big reasons why:

Massive, subsidized competition from ad-free video streaming services. Netflix, Hulu, Amazon Prime, Disney+ and Apple TV Plus are already in the market with ad-free video streaming services. They are all losing money (Amazon might be an exception since it creates value not through subscriber fees but in the volume and velocity of ecommerce transactions it drives).

These folks are in a battle to the death with each other, and will soon be joined by AT&T’s HBO Max. All are prepared to massively discount their services to win and hold subs. Free or “practically free” will become the new fee, even for fee-based video streaming.

Free and ad-supported can’t compete with practically free and ad-free. As long as the “paid” services discount their offerings — certainly until 2024 — ad-supported will have an extraordinarily hard time capturing viewership. It will all be about churn, as services fight with each other using short-term offers and discounts.

This will be ugly for anyone with a less desirable product (with interruptive ads rather than not) and a need for usage to make the model work. Advertisers pay for audiences and viewership by volume. If you sign up and don’t watch, they don’t make any money.

Hulu is already there. To the extent that ad-supported streaming video will be adopted, it already is, Hulu is a leader. Winning here requires not just beating the ad-free folks, but also taking viewership from Hulu. That requires a behavior change from consumers -- which is hard and expensive.

The biggest implication is that I don’t expect there to be much growth in over-the-top streaming video ad load in 2020. Pressure from ad-free services will keep subscriptions and viewership artificially suppressed.

Will I be right? We’ll see. What do you think?

ad-supported video on demand, advertising, streaming, svod, video

4 comments about "How Can 2020 Be Year Of AVOD When Ad-Free SVODs Are Practically Free?".

Check to receive email when comments are posted.

Douglas Ferguson from College of Charleston, January 17, 2020 at 9:09 a.m.
No surprise to anyone who has ever read my comments but you omitted the fourth reason: People are far less tolerant of advertising nowadays. Yes, they seemed to enjoy ads years ago when such were accepted as a necessary evil. How else could programmers monetize an anonymous audience back then? But now subscription options appeal to audiences who like the choice. Could there be a more repugnant term than "ad load"? Maybe it's time to shift advertising messages back to the more unavoidable platforms (for example, outdoor or cinema).
Reply

Dave Morgan from Simulmedia replied, January 17, 2020 at 6:10 p.m.

Very good point Douglas. Thanks for adding it!

Julie Riley from WISH-TV, January 20, 2020 at 1:43 p.m.

After being in this industry for way longer than I care to admit sometimes, I can still remember having conversations with sales managers, program directors, and research directors as well as agencies and advertisers where I discussed my opinion that advertising in its traditional form would have to change based on the changes in tolerance of advertising in general. Being someone who now subscribes to OTT services and has been given the choice of ad supported or ad free, and even though I work in the television industry myself, I would much rather watch TV ad free. That being said, product placement is, to me, something that is much less intrusive to most consumers (along with billboards and cinema), and yet I feel it's still underutilized. With the cost of programming production, actor salaries, piracy concerns, and the list goes on and on, I'm surprised that there are still so few brands that "subsidize" some of these costs in exchange for what could basically be a long form advertisement if done right. Brands like Pepsi and Budweiser have a long time identity with the Super Bowl, and in effect, have been subsidizing the production of it. I, for one, love to see what new commercials air each year. Gatorade has been on the sidelines and on every bottle hauled out to the field during many college football games. Additionally, with so many of the advertisements out there being "forgettable" either due to creative, pod placement, and a myriad of other reasons, I would think that more opportunities would be made for product placement. I'm NOT saying that every movie or TV show should become long form commercials for multiple brands, but I do think there could be an opportunity for some cross promotion in this challenging, fragmented, ever-changing, consumer driven ecosphere. What price and reach could have been placed on Ross and Rachel drinking from a Diet Coke can during Friends? My analytical mind ponders that often.

Thom Kennon from Free Radicals, January 21, 2020 at 6:38 a.m.

Great and candid piece Dave. My only query is re ad-supported being more viable on the other side of the streaming battle royale. What changea?