SVoDs are faced with the dilemma of attracting (and retaining) a large paying audience with premium content whilst ensuring sufficient revenue is ploughed back into content acquisition.
It's a spiral that Amazon, Hulu and Netflix are looking to break by integrating product placement into their original series libraries. For example, all of Amazon’s original programming contains brand integrations, while 91% of Hulu originals use them, according to Branded Entertainment Networks.
Netflix uses product placement in 74% of its original series. For example, it worked with Coca-Cola to weave a new drink into the core plot of Stranger Things season three. Such product placements can give streamers new ways to monetise beyond subs revenue without having to add advertising or, in the case of Hulu, increase the number of commercials.
While there is some evidence that consumers might be more receptive to brand integrations than to traditional ads (60% of consumers feel more positive toward a brand they recognize in a product placement), according to research almost three quarters of UK TV subscribers are completely against sponsorship or ads on VOD services. According to consultancy Differentology, a quarter of people are willing to upgrade to a premium ad-free service and 39% would either cancel their subscription or switch to another paid service.
The same survey found 43% of UK subscribers comfortable to trade viewing of ads for free content. AVoD revenue growth is expected to increase dramatically over the next few years as viewers switch to OTT and ad dollars move accordingly.
Initiatives in this area include broadcaster portals like ITV Hub where inventory is being sold programmatically. Netflix’s recent overtures about joining UK ratings authority Barb perhaps signals its intent to launch an ad-supported tier following in the footsteps of Amazon’s Internet Movie Database (IMDb)-affiliated Freedive and Viacom’s acquisition of Pluto TV.
Pluto TV offers over 100 channels and a no-frills ‘TV-like’ experience of AVoD which Viacom conceives as complementary to existing pay-TV relationships, and which acts as a marketing platform for its own D2C products like Comedy Central.
Crucially, AVoD’s growth lies in markets that don’t necessarily have the disposable income to subscribe. Viacom plans a Spanish-language version of Pluto; meanwhile the growth of subscription and ad-supported pan-Asian streamer Iflix is eye-catching.
The Kuala Lumpur headquartered brand nearly doubled its user base to 17 million in the first six months of 2019 and secured $50m investment to drive distribution deals, original commissions (including Caraoke Drift) and a premium sports channel which is intended to serve as the home of US sports in Asia. Co-founder and chairman Patrick Grove described the recent investment as “a clear affirmation of Iflix’s business model.”
Quality of Experience is as vital in AVoD as is it for retaining subscribers. A report by Conviva found ad delays of just five seconds led 13.6% of viewers to abandon content. With nearly half of all streaming ads failing (per Conviva) that’s a big risk for service providers as more ad dollars head for the streaming world. Ad delays of just five seconds lead 13.6% of viewers to abandon content, the report found.
