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Three reasons why media players are snapping up AVOD services

By Dan Goikhman, CEO, Unreel

Once perceived as the less-reliable brother to subscription-based powerhouses, ad-based on demand (AVOD) services are becoming a more sought-after model than ever.

And as AVOD growth continues to outpace other media and its spend is predicted to double to $47 billion by 2023, it’s no surprise that AVOD services such as Pluto TV and Future Today have been acquired by major service providers like Viacom and Cinedigm, respectively. Deals such as these indicate that AVOD services are becoming the preferred option of over-the-top (OTT) models for many big media players. Let’s take a deeper look into what’s in it for the companies that are buying up AVOD services and profiting in the process.

They can tap into larger audiences

Despite recent industry passion for ad-free subscription services, this sector is becoming dominated - and saturated - by Netflix and other smaller subscription-based platforms. This is dramatically reducing the potential audience for subscription-based services, as the average US consumer subscribed to two to three streaming services - one of which is “almost always” Netflix, which recently supported the cause by upping its standard subscription to $13 a month.

In fact, YouTube also ditched its subscription strategy to focus on AVOD instead, understanding the potential for a much wider audience. Ultimately, AVOD is able to use a crucial word that SVOD will never be able to: it’s free. This means that new audience sectors will always be up for competition. AVOD is undoubtedly on the up, as indicated by smart TV operating systems such as Roku, and the VAB, which reported increasing levels of AVOD viewing.

AVOD growth due to access to larger audiences is also demonstrated in Nielsen’s recent step to include ad viewership in its measurements as part of its audience reporting, after partnering with Comcast last year. This promises to give AVOD services crucial insights into the reach and ratings of its ads, not just the content.

AVOD services are built on valuable technology

The technology on which AVOD is built requires integration with ad networks, and the ability to gather data to use to target consumers. It also requires the technology to stitch ads into the content, using these data-powered targeting strategies. Accessing these insights brings a large potential revenue stream to the media companies that are choosing to invest in AVOD services.

AVOD technologies allow service providers to see beyond just the likes and dislikes of users. These technologies actually gain them access to big data analytics that can help them predict users’ reactions to different types of content, what type of ad they’re likely to engage with, and how and when they’re likely to engage with the platform. This is crucial in ensuring that you’re targeting the right audiences with the most relevant ads, thus heightening the potential for clicks and conversions.

Although AVOD doesn’t offer the same revenue stream or average revenue per user (APRU) that SVOD does, media companies are identifying the serious revenue opportunities that come from video ads due to the value data analytics can provide. James McDonald, data editor at Warc, says: “It is AVOD platforms that present the opportunity for advertisers to marry rich consumer data with pinpoint targeting during engaging content.”

The value is evident: On OTT we see cost per thousand impressions (CPM) range from $8 to $25. And it’s not just service providers that are benefiting from data-powered ads: in fact, 71% of consumers prefer personalised ads, reporting feeling more receptive to fewer promotions that are more targeted.

They can own the potential of ad inventory

And so, with such high user numbers, AVOD services give investors huge potential in terms of the ad inventory that they can benefit from. Once an AVOD service has a certain threshold of ad inventory, their entire audience becomes much more valuable and can be divided into specific, targeted audiences sectors.

The demand for a strong ad inventory is demonstrated in recent industry acquisitions: Viacom acquired Pluto TV in a $340 million all-cash transaction, Cinedigm is acquiring Future Today in a $60 million deal, and rumours continue to fly about Xumo potentially being acquired by buyers including Sinclair. Cinedigm expects it's the deal to be “immediately accretive to earnings” as Future Today’s revenue increased by 150% to an estimated $23.9 million in 2018. Viacom will now incorporate Pluto TV’s AVOD services alongside its paid offerings, allowing the company to monetise its library content through ad-supported streaming to Pluto’s 10 million monthly active users.

It’s undeniable that SVOD services have a level of reliability to them that cannot be guaranteed from AVOD services. However, users will only ever commit to a certain number of subscriptions, and AVOD is growing fast. Media players are seeing the value of a free OTT platform that not only gives them access to a huge audience base and advanced data analytics, but also hold huge potential in terms of ad inventory. By targeting these unlimited segmented audiences with relevant ads on engaging content, media companies can drive serious revenue thanks to AVOD services.

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