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Will AVOD Overtake TV Advertising in North America?

Disney+ is set to launch an ad-supported tier on Dec. 8, starting at $7.99 per month in the United States — $3 less than the $10.99 ad-free tier, with a new price point that goes into effect the same day. Netflix is expected to bow an ad-supported subscription tier globally in early 2023, following a smaller launch in the United States by the end of the year. In addition, the SVOD giant announced in July that it would partner with Microsoft for global advertising insertion within the ad-supported tier.

With YouTube (Google) and Freevee (Amazon) already well established in the AVOD landscape for years, the arrival of three of the remaining U.S. streaming giants sets up a new stage in the transformation of the video market in the country.

New intel from Dataxis finds that AVOD consumption among consumers has been outpacing SVOD for the last 18 months. The latest data collected separately by TVision at the end of 2021 found that almost 30% of households had more than 10 apps installed on their smart-TV — with a growing number dedicated to generic AVOD and FAST services.

According to Dataxis, AVOD is increasingly seen as a way to better promote existing SVOD offers and increase global retention — especially in the FAST segment, where CPMs (cost-per-thousand impressions) are growing quickly but remain low.

In discussions with executives from various AVOD services operating in the United States, Dataxis found a significant increase in engagement across every type of AVOD content, and a bigger potential when it comes to advertising insertion on connected smart-TV sets (CTVs).

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Indeed, a separate study conducted by DeepIntent and LG Ads reportedly found that 64% of viewers with connected TVs would rather see ads than pay more for ad-free content, highlighting the important gap observed between an increasing demand for content, and the constraints of households’ budgets, which cannot absorb an infinite number of SVOD services.

This constraint has been especially understood by U.S. regional TV networks, which had been facing a decline in their viewership since the rise of SVOD, while struggling to adapt their business model to the digital shift. While SVOD was not particularly suitable for their content offerings, revolving around local news, weather, or regional sports, AVOD represents a tremendous opportunity to re-linearize U.S. regional TV networks’ content online, especially through FAST channels.

To catch up with a belated digital transition, regional TV networks are now heavily investing in CTV distribution and FAST re-bundling. In less than a year, Scripps Networks, one of the biggest regional TV networks in the United States, upped CTV distribution by combining its FAST channels (Newsy, Ion, Court TV) to ensure their availability through a wide number of devices and platforms.

Dataxis expects the U.S. AVOD market to overtake the traditional advertising TV market by the end of 2025 in terms of revenue. This represents tremendous growth as a domestic AVOD market barely accounting for 10% of the advertising TV market five years ago.

While until now, the growth has mainly been driven by Youtube and its dominance in the AVOD landscape, AVOD revenue in the next few years is expected to be driven by the multiplication of FAST channels from traditional content owners, the re-bundling of existing content offers toward more ad-supported options, and a wider availability of these offers across the largest number of devices, CTVs and platforms possible.

“While platforms like Roku or Samsung TV Plus are expected to become leaders of the FAST landscape due to their significant presence in the CTV market, an ad-supported service such as Pluto TV could also manage to win on both sides, providing Paramount content through its own channels, and aggregating a growing number of external channels through distribution partnerships,” Thibault Giry, senior analyst at Dataxis, wrote in the report.

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