February 28, 2019
Hollywood’s VOD invasion is dominated by subscription video-on-demand (SVOD), or streaming, thanks to Netflix and Amazon Prime. But while studios try to hammer out ways to make transactional VOD (TVOD) more appealing, so they can keep a bigger slice of the revenue pie, a third player is beginning to make a lot of noise in the online entertainment business.
Advertising-supported video-on-demand, or AVOD, is rapidly coming out of the shadows, gaining traction among subscription-weary consumers as mega-media companies Comcast, Viacom and Amazon enter the market.
“I think AVOD content has been a big theme to start out this year,” said Eric Berman, of online entertainment company Ellation, during the February Digital Entertainment World conference in Marina del Rey, Calif.
As 2019 dawned, AVOD announcements proliferated.
In January, Amazon’s IMDb.com website launched an ad-supported video streaming platform, IMDb Freedive. The service enables users to watch TV shows, including “Fringe,” “Heroes,” “The Bachelor” and “Without a Trace,” as well as movies such as Awakenings, Foxcatcher, Memento, Monster, Run Lola Run, The Illusionist, The Last Samurai and True Romance, among others, without purchasing a subscription. IMDb has long been the go-to industry resource for information on actors, production companies, TV shows, movies and behind-the-scenes information. Through last October, the platform had about 5.3 million titles (including episodes) and 9.3 million personalities in its database, as well as 83 million registered users. Subscription-based IMDb Pro is considered a must-have “Rolodex” for the business-side of Hollywood.
“Consumers already rely on IMDb,” said founder and CEO Col Needham. “With Freedive, they can also watch full-length movies and TV shows for free.”
Also in January, Comcast-owned NBCUniversal announced a shakeup in the executive ranks as it plans to roll out an ad-supported streaming video service in 2020. The media company, which until recently eschewed OTT video, pulling the plug on short-lived comedy streaming service Seeso, named Bonnie Hammer chairman of direct-to-consumer and digital enterprises — a position that oversees NBC Universal’s stakes in digital media outlets, including Vox, Snap and BuzzFeed. The ad-supported streaming service will be available free to Comcast Cable pay-TV subscribers in the United States and major international markets. Comcast and U.K. satellite TV subsidiary Sky will offer the service to their 52 million combined subscribers. An ad-free version also will be available for a fee. Non-Comcast Cable subs also can purchase a subscription to the service.
“Our service will be different than those presently in the market and it will be built on the company’s strengths, with NBC Universal’s content and the technology expertise, broad scale and the wide distribution of Comcast Cable and Sky,” said NBCUniversal CEO Steve Burke.
In another January bombshell, less than two weeks after Amazon’s Freedive announcement, Viacom Inc., which had been on the sidelines while fellow media giants Walt Disney Co. and WarnerMedia rolled out plans for SVOD services, made its own direct-to-consumer move — in AVOD.
Viacom announced the acquisition of Los Angeles-based AVOD service Pluto TV for $340 million in cash. Pluto TV, which launched in 2013, features about 100 channels via an app that operates on 14 platforms, including Apple TV, Android TV, Amazon Fire TV, Chromecast, Roku and PlayStation consoles.
“Pluto TV’s unique product, combined with Viacom’s brands, content, advanced advertising capabilities and global scale, creates a great opportunity for consumers, partners and Viacom,” said Viacom CEO Bob Bakish in announcing the move.
AVOD represents an opportunity in a fragmented video marketplace by offering a free alternative to subscription services, he said.
“We’ve been focused on developing a differentiated direct-to-consumer streaming service that would exploit our considerable content library and leverage our unique advertiser capabilities and relationships,” Bakish said on a Viacom fiscal call. “Pluto TV fits squarely into that strategy.”
The platform gives Viacom access to more than 12 million active monthly AVOD users and distribution on more than 30 million devices nationwide through the app. The free service will also serve as an important marketing engine to acquire and retain consumers for existing and new SVOD services such as Noggin, Comedy Central Now and newly launched Nick Hits, Bakish said, as well as offering a new space to enhance Viacom’s “addressable advertising market,” through millions of impressions per month, he said.
Bakish said Pluto TV currently sells less than 50% of this inventory.
“These are very high-quality impressions,” he said. “There’s plenty of upside here.”
The CEO said he believes AVOD will be able to extract greater margins from library content.
“We made the strategic decision two years ago to curtail the licensing of large library packages to SVOD with our streaming services in mind,” Bakish said.
Viacom plans to leverage its brand, infrastructure and capabilities to expand Pluto TV globally.
Tom Ryan, co-founder and CEO of Pluto TV, extolled the virtues of the Viacom deal, including its international reach, at the February DEW conference.
“They have world-class brands, well-known programming. They’ve got advanced advertising capabilities, and they are a global company,” he said.
Free AVOD fills an important need as “there has been a certain amount of subscription fatigue,” he said.
“The problem comes down to payment,” he said. “There are only so many services that people will pay for.”
He mentioned a survey by Ampere that found the average SVOD home subscribes to 2.8 streaming services.
“You have Netflix and Amazon Prime, and everybody else fighting for that 0.8,” he said.
A Market for Free VOD
Indeed, with a media landscape littered with SVOD leaders Netflix, Amazon and Hulu — as well as a proliferation of other subscription-based online TV services, such as Sling TV, DirecTV Now, PlayStation Vue and YouTube TV — consumers could be hitting subscription overload.
AVOD offers consumers (typically younger) an economical (i.e. free) alternative — and marketers a captive audience.
“Advertisers have a real opportunity [with AVOD] to make connections with a younger [demo] likely to have higher incomes,” said Anna Bager, EVP of industry initiatives at research firm IAB.
And marketers have taken note.
Since 2014, online video ad sales have increased nearly 20% annually, with the online video ad market projected to experience double-digit growth by 2020. More than 37 million U.S. households watched ad-supported shows on connected TVs in 2016, according to Modi Media. Meanwhile Nielsen reports 75% of AVOD’s targeted demographic doesn’t mind ads as long as the content is free.
“It became clear to us that there is a massive group of consumers migrating their viewing to mobile and OTT but finding themselves underserved by live-TV bundles and the universe of competing paid services,” said Yelena Shkolnik of Jump Capital, a venture group backing AVOD service Tubi TV.
IAB found the largest AVOD audience segment is 18- to 34-year-old adults, including households with kids, that skews male. Nearly three-quarters (73%) of those who regularly stream video say that they watch ad-supported OTT. Moreover, 45% of streamers report they watch ad-supported OTT the most. More than half (52%) of AVOD viewers are cord-cutters or cord-shavers, with 42% citing “convenience/flexibility” and 38% citing “better content” as reasons to watch. Additionally, AVOD viewers spend less time watching cable than SVOD viewers. AVOD viewers report watching more OTT video than they did a year ago.
“The findings suggest marketers navigate their way to valuable and receptive audiences by deploying an AVOD strategy,” said Bager.
Chicago-based research firm Lab42 says U.S. consumers on average use upwards of three paid streaming services, with one of them “almost always Netflix,” according to managing partner Jonathan Pirc.
When consumers use a variety of streaming platforms, they’re committing to a piecemeal collection of monthly fees — excluding high-speed Internet service — that quickly rival the traditional cable bundle in cost, said Colin Petrie-Norris, CEO of Xumo, an ad-supported live-TV/on-demand platform.
“Price-sensitive consumers are seeing [AVOD] as viable alternatives or complements to paid services — that’s probably the biggest factor about AVOD’s rising profile,” Petrie-Norris said.
AVOD and Aggregation
Many AVOD players have long been toiling in the background. Longtime AVOD pioneers Sony Crackle and Shout! TV have streamed free content to largely niche audiences for years. Aggregators, such as The Roku Channel, hope to bring new audiences to those niches through a channel format. The platform, which launched in 2017, emulates Amazon Channels, offering third-party OTT video services while upping the AVOD ante through wider content selection to a base of more than 27 million registered Roku users.
“Free content is clearly important to our users,” founder and CEO Anthony Wood wrote in a recent fiscal newsletter. Citing internal surveys, Wood said 90% of respondents singled out free content as “very important.” A similar survey found The Roku Channel factored heavily (43%) upon consumers looking to purchase a Roku device for the first time.
AVOD has become a “material source” of ad impressions and monetization, he wrote.
“Our ability to monetize this content and share the economics with content partners has proved to be a winning solution for existing channels on the platform that have syndicated their content, and for studios that can publish directly into in The Roku Channel through direct licensing or revenue sharing arrangements,” Woods wrote.
AVOD in the Spotlight
With the increased focus on AVOD, new and old players in the market are suddenly in the spotlight.
WarnerMedia, which is launching a SVOD service in Q4, is considering distributing content via “two-sided” business models that include SVOD and AVOD. Speaking on an AT&T fiscal call, CEO Randall Stephenson said the acquisition of Xandr to help sell digital advertising to AT&T’s 170 million mobile and broadband subscribers underscored opportunities for AVOD that he said would help keep content pricing and consumer acquisition costs down, while also funding content purchasing.
Last August, Irvine, Calif.-based CE manufacturer Vizio rolled out WatchFree, a proprietary ad-supported streaming video platform for its line of televisions that partnered with Pluto TV to feature action movies, black cinema, news channels, NBC News, MSNBC, Fox Sports and related fare.
San Francisco-based Tubi TV, which bowed in 2014 as an ad-supported VOD platform with more than 9,000 movies and television shows from Warner Bros., Fox, MGM, Lionsgate and Paramount, among others, has boasted monthly audience growth of more than 1,000% since 2016, and recently announced availability on Comcast Xfinity X1, in addition to Android and iOS mobile devices, and on OTT devices such as Roku, Apple TV, Chromecast, Xbox 360, Xbox One, Sony, PlayStation 4, Samsung and Amazon Fire TV. Users can also watch online at TubiTV.com. The platform announced viewership increased 430% in 2018 from 2017, with December generating nearly as much content streamed as in all of 2017. It also announced it had turned a profit in the fourth quarter, with revenue up more than 180% in 2018. More than 1,000 advertisers ran spots on Tubi, including consumer products and automotive advertisers, according to the company. Tubi in January announced plans to spend more than $100 million on content in 2019. The service currently features a library of more than 12,000 movies and television series from more than 200 content partners, including most major studios.
“In 2018, Tubi saw tremendous growth as consumers, fatigued by SVOD subscriptions and services, sought alternative entertainment choices,” said founder and CEO Farhad Massoudi. “We will continue to use profits to make bigger bets on content, enhance the viewing experience, and continue to press ahead into new grounds in what is our core advantage: technology and data.”
While AVOD features largely catalog content, the market is eyeing original fare to compete with SVOD, but it remains to be seen if AVOD can compete with the enormous content funding its SVOD competitors have.
“There’s a big conundrum in the AVOD model,” said Popsugar Studios’ David Grant at the DEW conference in February. “Somehow the content has to be created.”
“When is the AVOD system going to be able to fund the creation of television-sized content?” he asked.
To help pay for original content, Sony is looking to sell a minority stake in its AVOD service Crackle. In a memo to staff last summer, Mike Hopkins, chairman of TV production at Sony, called the service a “tremendously valuable asset.”
“With the right partner — one that could bring additional content, users or leverage existing assets for advertising and promotion — we feel we can expand Crackle’s audience and significantly increase revenue,” Hopkins wrote.
Crackle has scored online hits with original series “The Art of More” and Jerry Seinfeld’s “Comedians in Cars Getting Coffee” — the latter now operating under the more-lucrative Netflix umbrella.
IMDb Jan. 16 announced the premiere of “UnMade,” an original series that follows comedians as they share plots, inspirations and stories for projects that are not listed on IMDb, because they were never produced. In each episode, celebrity comedians remember projects they penned before they were famous — and, spoiler alert — Hollywood missed out on some winners. These ambitious yet sometimes misguided scripts are given a second chance and brought to life via a team of actors and a professional production crew. The first three episodes feature Jay Chandrasekhar (Super Troopers), Kristen Schaal (“Last Man on Earth”) and Rainn Wilson (“The Office”) sharing ideas. Future guests include Nick Cannon, Bobby Moynihan, Tig Notaro, Paul Rust, Reggie Watts and “Weird Al” Yankovic.
“UnMade provides fans with a comedic new perspective on how the industry works, and why certain projects get made … or don’t,” said Steve Bernstein, GM of IMDb Video.
The series stays true to IMDb’s niche audience and follows previous original series, such as “The IMDb Show,” “So Far,” “No Small Parts” and “Casting Calls.”
“We offer even more original videos for our customers to dive deeper into the stories that shape the industry,” Bernstein said.
Shout! TV’s original programming includes “Backlot,” featuring trade show coverage, interviews with filmmakers and industry experts. “Why We Loved It” explores in-depth analysis on the cult appeal of a range of genres, including vampires, horror, superheroes, comedians and post-apocalyptic antiheroes (i.e. Mad Max).
Star or Supporting Player
While AVOD may be the newest star in the online entertainment landscape, it remains to be seen if it will be as big a draw as SVOD. Michael Pachter, digital media analyst with Wedbush Securities in Los Angeles, is unsure about the AVOD hype, saying he doubts it will threaten Netflix and supplant the SVOD ecosystem. He considers the distribution channel largely supplemental to SVOD.
“I’m sure that there are people who can’t afford Netflix who will watch AVOD, and there are a handful of subscribers who will defect from Netflix, but most subscribers appreciate the unique content available only on [SVOD] and will remain subscribers so long as there is fresh content,” Pachter said.