The Future of AVOD: How Ad-Supported Tiers Are Changing CTV

Streaming services are undergoing a significant transformation. Industry giants like Disney+, Netflix, and Prime Video, previously operating exclusively under subscription-only models, are now embracing ad-supported tiers, signaling a shift in the Connected TV (CTV) landscape. This move towards Ad-Supported Video on Demand (AVOD) is a strategic response to changing market dynamics. 

/// The Growing Prominence of AVOD

The landscape of video streaming is witnessing a paradigm shift, with AVOD rapidly gaining ground. This trend signifies a strategic pivot from the previous reliance on subscription-based models (SVOD) to a more diversified revenue approach. AVOD’s ability to tap into both advertising and subscriber revenue streams offers a more sustainable and scalable business model for streaming platforms.

The global market, with its diverse consumer base, presents unique challenges and opportunities. AVOD's flexibility and accessibility make it particularly appealing in various international markets, accommodating different viewer preferences and economic realities.

Moreover, the adoption of AVOD is a strategic endeavor to foster consumer loyalty in an increasingly competitive landscape. As streaming services vie for viewers' attention, the ability to offer both ad-supported and ad-free experiences caters to a broader spectrum of consumer preferences, enhancing platform engagement.

In essence, the growing prominence of AVOD is a testament to the industry's adaptability and foresight, indicating that streaming platforms are proactively shaping the future of entertainment consumption. 

/// Millennials and AVOD: A Crucial Demographic

Millennials, often dubbed "digital natives", are at the forefront of the AVOD revolution. A study conducted by Samba TV sheds light on this demographic's inclination towards ad-supported streaming services. The findings are telling: 68% of millennials already have a streaming subscription that includes ads, and an equal percentage would likely switch to a cheaper, ad-supported version of their current subscription.

This openness to AVOD among millennials is a reflection of their media consumption habits. With 85% of millennials engaging with a mobile device while watching TV, AVOD platforms have the potential to integrate interactive and targeted advertising, turning passive viewing into an engaging experience.

Furthermore, the study reveals that millennials are actively seeking out AVOD. A significant 72% expressed interest in watching live events on SVOD and AVOD platforms, indicating the untapped potential of AVOD in catering to this demographic.

Millennials' receptiveness to ad-supported content is a game-changer for advertisers and streaming services alike, signaling a shift in the advertising paradigm and shaping the future trajectory of AVOD.

Related: What Is CTV Advertising: Connected TV Ads + How They Work

/// Revenue Projections and Market Dynamics

The future of streaming, particularly the hybrid model of AVOD and SVOD services, is poised for exponential growth. Projections by Digital TV Research suggest that combined revenues from AVOD and SVOD models are expected to triple by 2029, with leading platforms like Netflix, Disney+, Max, and Paramount+ projected to generate a staggering $20 billion in combined revenues, up from $6 billion in 2023.

This growth trajectory is indicative of a significant shift in market dynamics, with revenues expected to be nearly equally split between ad-supported and subscription-based streams. Disney is projected to lead the pack with an estimated $6.8 billion in combined AVOD-SVOD revenue by 2029, narrowly surpassing Netflix's projected $6.4 billion.

The projected growth in AVOD revenues reflects a broader trend in viewer behavior. As viewers become more selective and cost-conscious, the appeal of lower-priced, ad-supported options is on the rise, creating new opportunities for advertisers to reach audiences in a more targeted and engaging manner.

/// Viewership Trends and Advertising Spend

The landscape of streaming viewership in the United States is undergoing a significant transformation, with AVOD services taking the lead. Insider Intelligence forecasts a remarkable surge in AVOD viewership, projecting that these services will gain more than triple the U.S. viewers compared to SVOD services within the year.

This surge in AVOD viewership is closely tied to the trends in advertising spend. Connected TV is expected to see ad spending hit an impressive $25.09 billion in 2023. The focus on profitability is driving streaming services to explore new ad plans and formats, aiming to enhance the value created for both consumers and advertisers.

The trend towards AVOD is also indicative of a broader shift in viewer preferences. The rise in AVOD viewership suggests that consumers are willing to engage with ad-supported content if it means access to quality programming at a lower cost.

/// Disney+, Netflix, and Prime Video: Emerging Dynamics of the AVOD Market

Despite being relative newcomers to the AVOD landscape, Disney+ and Netflix are quickly gaining momentum. Within their initial three months, Disney+'s ad-supported offerings garnered 36% of new subscriptions.

Similarly, Netflix has demonstrated robust growth in its ad-supported segment. The company’s ad membership swelled by nearly 70% in Q3 2023, making up about 30% of all new sign-ups across its 12 ad-supported countries and amassing 15 million monthly active users within just a year of its launch.

While Disney+ and Netflix have made impressive strides, it’s important to acknowledge the established presence of Hulu, Paramount+, Peacock, and Discovery+ in the AVOD arena. These platforms have long embraced the dual AVOD/SVOD model and collectively surpassed 100 million ad-supported subscriptions in the U.S. as of June 2023. Their early moves in this space laid the groundwork for what is now becoming a more crowded space.

The rapid ascent of Disney+ and Netflix in the AVOD market is indicative of their vast user bases and the potential for significant impact. With Amazon set to introduce an SVOD offering to Prime Video and Disney poised to acquire Comcast's remaining 33 percent stake in Hulu, both in 2024, the stage is set for these major players to potentially dominate the AVOD space. Their late entry into the market is contrasted by their rapid growth and the scale of their existing user communities, suggesting that they may soon lead the AVOD pack.

Related: What Marketers Need to Know About CTV and OTT in 2024 [Infographic]

/// Conclusion

The advent of ad-supported tiers in major streaming services marks a pivotal moment in the evolution of CTV. The rise of AVOD is a fundamental shift in the streaming ecosystem, resonating with both consumers and advertisers.

The implications of this shift are profound for the CTV advertising landscape. With the growing prominence of AVOD, advertisers are presented with an expanded inventory, offering a more accessible and flexible advertising environment. Moreover, as has already been seen, intensifying competition among platforms is likely to exert downward pressure on ad pricing, a welcome development for advertisers contending with the historically high CPMs on these services.

For consumers, the rise of AVOD signifies a win in terms of choice and affordability. The option to choose ad-supported tiers caters to a broader spectrum of viewer preferences, making streaming services more inclusive.

In conclusion, the future of AVOD in the CTV space is bright and promising. The shift towards ad-supported tiers is reshaping the entire landscape of digital entertainment, heralding a new era of possibilities and opportunities in the world of streaming.