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AVoD 2023: Will ad-funded streaming provide a meaningful source of revenue?

By Loewe Tan

While the overall market share for subscription video-on-demand (SVoD) services has recorded modest growth for the past few years, it seems to have reached a tipping point, as advertising video-on-demand (AVoD) looks set to usher in a new age of domination in the streaming industry. 

Through ad-funded streaming, streaming players will be able to diversify their revenue streams by attracting price sensitive audiences. Despite and perhaps because of stagnated subscription rates for the last two quarters, Netflix has introduced an ad-supported tier to welcome budget-sensitive audiences, while opening the gateway for advertisers who have been keen to bring their brand message across to their targeted audience. 

More importantly, price sensitive churns will see a reduction with the introduction of ad-funded streaming during recessionary periods. Under new economic constraints, home entertainment may see a fall in subscription and lower priced subscription plans can entice the consumers to continue to watch their favourite shows — but with ads.

Data analytics and brand consulting firm Kantar’s Entertainment on Demand service, which tracks the full digital subscription customer journey across music and video, has reported that the growth rate of SVoD reduced by 0.2%, while AVoD increased by 2.2% in the first quarter of 2022.

In contrast to past market sentiments, consumers were indeed showing more acceptance towards viewing advertisements while consuming content.

Kantar also reported that the market penetration rate for AVoD increased by 3% in the second quarter of 2022.

So, what is the potential impact of the paradigm shift from a subscription-dominated landscape to ad-funded streaming? And as consumers show less aversion towards ads and more sensitivity towards pricing, will the streaming industry see more innovation in ad-tech?

Connected TV (CTV) has enabled ad-tech to be integrated seamlessly with streaming platforms. This in turn, has attracted ad spend on CTV and in direct relation, the streaming platforms. Up to 57% of video advertisement buyers claimed that CTV allowed them to deliver advertising messages more effectively than linear TV, according to an Interactive Advertising Bureau (IAB) survey.

Moreover, they were able to personalise their offerings using first-hand, location and shopping data, which is not available on linear TV. Without the right technology, video tagging and media scraping with unstructured data can become a tedious task.

To grab a slice of the growing AVoD pie, over-the-top (OTT) players can equip themselves with intuitive ad-tech. 

Iris.TV, for instance, has come up with a method to standardise the unstructured data from the connected devices, and manifest the contextual data to advertisers — allowing them to provide personalised advertisement to the audience. With rising concerns over privacy, no personally identifiable data is collected in the process, and only content-related data is collected.

This provides OTT players with the tools to automate data governance with ease. 

Apart from automation, OTT players can also turn to plug-and-play ad-solutions. Amagi has launched THUNDERSTORM, a dynamic ad insertion-as-a-service for linear, live and video-on-demand (VoD) channels. It supports automatic ad detection to insert ads that are in line with the location’s privacy and data protection regulations. Most importantly, the plug-and-play solution offers overlay graphics and interactivity to help capture the attention of the intended audience.

As the streaming industry shifts towards the ad-funded model, will it continue to grow and provide a meaningful source of revenue for streaming players in 2023?

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