How AVODs are returning TV to advertisers

How AVODs are returning TV to advertisers
How AVODs are returning TV to advertisers

When it comes to the changing TV landscape, marketers are crying for joy.

The days of streamers shunning marketers and gatekeeping a massive subscriber audience are over. Instead, SVOD subscriptions go down, according to a Q3 analysis by Kantarand the growth comes from platforms that have a combination of both SVOD and AVOD/FAST (free ad-supported TV), which opens up inventory for advertisers.

And with streaming giants Disney+ and for a long time advertising holdout Netflix both having finally gotten into the cheaper, ad-supported game over the last couple of months, this growth is likely to continue into 2023, especially with price-crunching consumers looking for cost relief. Netflix co-CEO Ted Sarandos has even said that the platform may offer more ad-supported tiers in the future.

“Consumers are getting tired of all these subscriptions,” said Marcy Greenberger, evp, integrated investing, UM. “It’s getting almost as expensive as a cable subscription to subscribe to so many different services, so having someone that’s either completely free with ads or has a lower price point but with ads is a good compromise and can enable consumers to access more of these platforms.”


In addition to providing cost-conscious consumers with cheaper, ad-supported options in an increasingly uncertain economy, AVODs also allow marketers to access new, engaged audiences.

“From an advertiser’s perspective, it’s no secret that major brands have been clamoring for Netflix’s addressable audience. And now with the launch of Disney+’s ad tier, this gives brands greater potential reach within the overall CTV market,” said Mike Proulx, vp, director of research at Forrester .

Disney+ reaches more than 164 million subscribersand Disney head of ad sales Rita Ferro told Adweek that marketers have been asking for the ad tier, which rolled out in December, ever since the platform debuted in 2019. Meanwhile, Netflix, which tops 223 million subscriberswas nearly sold out of inventory when the ad team debuted last November, despite launching long after pre-launch at a time when some advertisers were pulling back on budgets due to economic factors.

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And while Kantar analysis shows that AVOD users tend to have lower incomes than SVOD subscribers, they are also likely to be younger with young families, giving advertisers a chance to reach the coveted 18-34 market .

Jeremi Gorman, Netflix’s president of worldwide advertising, told Adweek that she has never experienced such enthusiasm from marketers.

“Advertisers are looking to reach more and more audiences who may have changed their viewing habits, and we deliver that sparingly,” Gorman said. “We have the opportunity to help advertisers reach a diverse, younger audience in premium environments. It is a recipe for excitement and demand.”

Answers in a questionable economy

AVOD tiers and FAST channels are also a much-needed additional revenue stream for media companies looking to shore up their finances in a rocky market.

In accordance S&P Global Market Intelligence, FAST Ad Revenue could approach $4 billion by 2022 and reach $9 billion by 2026, with audience growth led by the migration of cord-cutters from linear networks. About two-thirds of that revenue will go through offerings from Peacock, Pluto TV and Tubi, but consumers have plenty of other options to choose from. There were more than 1,400 FAST channels estimated in the US in 2022, and the number continues to grow.

“Ad support is clearly one arrow in the quiver,” said Jason Kanefsky, managing partner, marketplace intelligence at Havas Media Group North America. “And you talk about RPU [revenue per user], RPU on Hulu is proven, and I think it’s clear across the board. Now ad revenue plus AVOD fee is better today than just SVOD.”

By all accounts, companies are winding down the streaming wars strategy of chasing subscribers for the sake of gaudy stats; instead, they focus on RPU.

Warner Bros. Discovery CEO David Zaslav has emphasized in earnings calls that the company won’t spend too much on content just to increase subscribers, and the streamer even broadcasts some of its existing HBO and HBO Max shows to third-party ad-supported platforms– his company is also working on its own FAST offering – to improve its bottom line with licensing revenue.

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On the Disney side, returning CEO Bob Iger said a top initiative prioritizes streaming profitability over subscriber numbers. The company announced on its fourth-quarter earnings call in November that Disney+ had added 12.1 million subscribers last quarter, but the direct-to-consumer segment lost $1.5 billion.

“It is a very deliberate strategy in relation to what we offer. If you consider our entire suite of streaming products [Disney+, Hulu and ESPN+] today we have advertising as a proposition across all of them,” Ferro said of how the focus on subscriber revenue fits into Disney+’s plans. “It gives consumers the choice to have any of these and obviously from a business perspective allows us to really serve our customers.”

Although Forrester data shows that consumers often take every opportunity to skip ads whenever possible, the company found in January 2022 that 44% of US online adults who use a streaming service would trade the high prices for ads.

According to Proulx, “there is a huge appetite” for ad teams from consumers who will consider downgrading from SVOD or signing up for the first time.

“How will consumers react to this? Well, now they have a choice,” Proulx said. “If they don’t like the amount of advertising found in any of these streaming services, they can pay more money for an ad-free experience.”

Or they can drop the streamer altogether.

For AVODs to succeed, it will come down to the viewing experience, according to Kanefsky, who added that “a lot” will depend on getting ad loads and frequency caps right, with pushback in the form of either disconnecting from the platform entirely or going with a SVOD option instead.

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“The real win is going to be a model of RPU that includes both ad support and a subscriber fee,” Kanefsky said. “It’s a fine line they’re already on. The pods, which are 2 minutes long, feel long. The 90-second pods are perfectly OK.”

Tuned to the correct frequency

It’s still early days for the latest big entries into the AVOD space, with both Netflix and Disney+ debuting with limited targeting and ad format options as each service builds its audience before rolling out more features in 2023.

However, each service has also emphasized its viewing experience, with both focusing on having around 4-minute ad is loaded and strict frequency caps.

Buyers told Adweek that Netflix looking at a cap of once per hour or three times per day per household for a particular creative. As for Disney+, Ferro said the platform would limit slots to one per hour, two per day and 12 per week per user profile.

“We’re fully focused on the experience for partners and really getting as broad a list of advertisers as possible with the most creative to really make sure that the fan that comes to Disney with ads feels like they’re having the best experience, just like someone who coming to Disney+ today without ads, says Ferro.

As for the future of ad tiers, Gorman said Netflix will be in business “for decades to come,” and that the TV industry is just the beginning.

“I see this happening outside of media companies. One need only look at the growth of retail media networks such as Amazon, Target, Kroger, Walmart. Or ads on Uber and Lyft, Gorman said. “More companies are realizing that advertising can be a useful tool for providing relevant content to their community, while generating profitable revenue and giving customers options.”