Whilst lockdown has seen an overall rise in video and TV consumption, the longer-term trend of a decline in traditional linear TV watching and surging OTT viewing is set to continue post-Covid. The array of services, business models and content diversity has propelled OTT viewing, with consumers able to tailor their own schedule.
This diversity in the landscape is highlighted by the continued strength of ‘Go-to’ services Netflix and YouTube, new D2C services Disney+, HBO Max and Peacock and the plethora of specialist streaming services. This diversity is further heightened by social media video, local broadcaster VoD services, ‘on the go’ Pay-TV services, virtual MVPDs and esports. Consumers are now spoilt for choice and using multiple services – in the USA, each SVoD household takes on average 3 SVoD services – with the wide variety of other service types listed above also vying for consumers’ viewing time. Lockdown has placed this diversity further into view, with consumers trying new services and watching more OTT content than ever before.
However, traditional linear platforms have found it challenging to attract and retain younger viewers in this evolving landscape. Futuresource’s latest Living with Digital consumer survey suggests that only around 20% of 16-25 year olds’ total viewing time is live/linear TV and half of this is streamed rather than on traditional platforms. Across the entire population, over half of all video viewing in the USA is now OTT, with the figure getting close to this across other countries.
This combination of disengaged youth and growing OTT viewing is where AVoD platforms see the opportunity – effectively resetting the linear TV model for the OTT age, in turn attracting a younger audience once more. AVoD services such as PlutoTV are looking to become the modern age commercial broadcaster, funding content aggregation through advertising with a likely steppingstone to paid-for offerings moving forwards. Targeted advertising will become increasingly efficient on such platforms, driven further by the prospect of increasingly personalised channels, helping increase viewer engagement and ultimately revenue.
In the last two years in the USA, this new wave of AVoD services have stimulated a landgrab from leading media conglomerates; PlutoTV was acquired by Viacom, Tubi by Comcast and Xumo by Fox. User-base growth has impressed. At the end of Q1 2020, PlutoTV had 24 million active monthly users, double its base at end of 2018.
In the USA, PlutoTV now has over 250 thematic channels, driving uptake through channel curation, acquiring rights to both mainstream and specialist third party content and extending reach through hardware partnerships, helping it develop a unique identity in a cluttered streaming landscape.
In contrast, leading premium streamers such as Netflix, Amazon Prime Video and Disney+ are ad-free, in-fact, being ad-free was a key reason for signing up to the likes of Netflix at the height of their growth in the USA. Yet, advertising driven services such as PlutoTV and Tubi have embraced a white space between traditional FTA TV, YouTube and paid-for streaming services.
Whilst other content owners have largely focussed their D2C efforts on paid-for subscriptions, NBC Universal’s Peacock is also pushing an AVoD version to broaden its reach. Also intriguing is Peacock’s recent licensing deal with ViacomCBS, owners of Pluto TV, highlighting that AVoD has provided new opportunities and revenue streams in content licensing and aggregation, in an era when D2C and Originals have become so prominent. As the scale of AVoD services grow, so does the appeal of non-exclusive licensing deals.
Despite most content on AVoD services being non-exclusive (although there are exceptions), it is the content which drives uptake. In Futuresource’s latest Living with Digital survey, 32% of US AVoD users cited watching the services for content that they can’t get elsewhere for free; with a similar amount saying they watch for TV shows that interest them and also when they can’t find anything to watch on Netflix or other SVoD services.
In the USA, there are other established AVoD players of note. Roku is successfully transitioning itself from being a hardware-led organisation to a services and advertising and platform driven business. Its flagship “The Roku Channel” now reaches 36 million households and has seen streaming hours double in the last year, whilst also continually expanding reach internationally.
In addition, YouTube remains as significant as ever, continuing to develop its branded channels and partnerships. Global ad revenues from the service exceeded $4 billion in Q1 2020, up 33% year-on-year, highlighting its continued dominance in AVoD in terms of revenue and that building true scale in streaming video advertising does not happen overnight.
The new wave of AVoD services has been largely driven by the USA. Outside of the USA, particularly in Europe, the likes of PlutoTV, Xumo and Tubi are either not present, only recently launched or have low awareness. Whilst international expansion is a key part of their future strategy, the highly localised international television landscape provides AVoD services with different challenges.
In many countries, local broadcasters have developed impressive free BVoD (broadcaster VoD) services over the past 10+ years. With public service broadcaster offerings such as BBC’s ad-free iPlayer, complemented by ad-funded commercial broadcaster offerings such as ITV Hub. Such services as these are well established across Europe, but only available in their local market. They complement both traditional free to air and other streaming video viewing; in leading European countries over 60% of the population watch BVoD services at least monthly.
Joyn, ProSiebenSat.1 Media and Discovery’s AVoD service, which also has a subscription up-sell, is one of only a handful of BVoD/AVoD joint ventures in Europe, with thematic channels and a wide range of on-demand content. Similar services in other European countries have been considered for several years but have been hindered by competitive and regulatory issues and broadcaster’s focus on the evolution of their own D2C BVoD services.
New entrants to Europe’s AVoD landscape have also emerged. European based transactional video service Rakuten TV launched a selection of licensed free AVoD movies in 2019, complementing its digital rental and sell-through service, whilst also producing a handful of original sports documentary movies. The Roku Channel launched in the UK earlier this year with impressive reach, including Sky Q users, as it too looks to reduce its reliance on US revenue in the longer term.
So, whilst the US has seen rapid adoption of US AVoD services such as PlutoTV, it will be more difficult for such services to carve out the previously mentioned ‘whitespace’ in Europe, partly due to the localised and well established FTA framework. Content partnerships and licensing deals with both local and international players will be key to help drive awareness and usage, as will major hardware and platform partnerships. Telcos, IPTV operators and cable companies, which have become accustomed to carrying third party channels and services, provide the most obvious opportunity to achieve scale quickly. Leading UK cable operator, Virgin Media (part of Liberty Global), recently added the Pluto TV app to its platform, giving its 3.7 million subscribers access to over 100 live channels.
The path to wider adoption of AVoD in Europe will likely be very different to the USA. Building platforms that become more than just providing ‘filler viewing’, to becoming an important part of consumers’ video viewing lifestyle will likely take longer - and in some countries may always struggle to achieve scale. But as advertising revenues post Covid recover, further investment will see AVoD steadily become an increasing part of the overall revenue mix, whilst providing content owners with new licensing opportunities and advertisers another platform to provide highly targeted advertising.
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