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Attraction of the advertising model in AVOD

avodNow, it is possible to offer much more targeted advertising to the individual viewer, which improves the user experience of the service.

Paloma Santucci

According to Digital TV Research, global revenue from Video on Demand (AVOD) advertising will reach $56 billion by 2024. OTT video providers are increasingly finding that consumers are prepared to subscribe to ad-supported services if they are given access to the content they want. The rise of targeted advertising is also having an impact because consumers are less likely to be irritated by ads if they are relevant to their interests and preferences (which the development of ad technology and data use is helping to identify more accurately).

The situation is different globally, with AVOD especially popular in certain parts of the world. Therefore, this article will explore the latest trends in the global AVOD market and those that shape the growing popularity of the model.

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Technological Improvements
The AVOD model traditionally lagged behind its most popular competitor, the Video on Demand Subscription (SVOD). In 2018, SVOD platforms generated just over $35 billion, while AVOD's revenue reached around $21.9 billion in the same year. However, change seems to be on the horizon, with recent estimates predicting that AVOD's revenue will reach a whopping $56 billion by 2024.

The crowded nature of the SVOD market is likely to be a contributing factor: the subscription model has dominated so far, but market saturation is definitely affecting consumers' willingness to pay for another service. Today, consumers have access to a plethora of options and are increasingly excited about the idea of what is often touted as "free" content in exchange for ads.

The rise of AVOD is closely related to the rise of sophisticated ad technology that is helping to improve the monetization of AVOD content. Now, it is possible to offer much more targeted advertising to the individual viewer, which improves the user experience of the service. These ad spaces also have a significantly higher value, given that the conversion rate of targeted ads is likely to be higher than that of generic ones.

As a result of this targeting, viewers are less frustrated by the ads offered to them and are happy to commit in exchange for premium content. Younger people, in particular, are more likely to subscribe to AVOD and have a higher tolerance for ads. This could be because the demographic is more accustomed to being exposed to advertising on social media and other web-based services, or because of their lower revenue availability.

Attractive Markets
By 2024, North American VOD platforms will generate just $20.3 billion, just $1.6 billion below the global revenue figure for 2018. But it's in developing markets, where we're likely to see the biggest growth in AVOD's popularity. In APAC, Digital TV Research predicts that revenue will reach $13.3 billion, a significant portion of global revenue considering AVOD's short time in the region. Sub-Saharan Africa, Latin America and MENA are growth markets for AVOD and all three will see their forecasts double between 2019 and 2024.

Currently in Latin America, that market is dominated by YouTube, which accounts for more than 90% of advertising revenue in the region's AVOD market, according to Dataxis. Perhaps, YouTube's dominance will level the way for other providers to adopt the same model. This is also evident in a number of newcomers who entered the market, including PlutoTV, Roku, and Plex. As highlighted in an article in Latin America Business Stories, models with advertising need good content and a good user experience, and that means partnerships with platforms, studios and channels. Roku has a range of global and local content channels from new markets. In Brazil, that includes Globoplay, the service of the largest communication group in Latin America.

Advertising-funded models are particularly attractive to developing countries due in part to low disposable incomes. It's also an alternative to pirated SVOD content, which we know is a big challenge for content providers in these regions. In addition to this, much of the video consumption in developing markets, particularly in APAC, is done on mobile devices. This often means that there is much more user-specific data available to service providers, which can be used to more accurately target and personalize ads.

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Whether in developing regions or established markets, viewers are increasingly happy to receive ads in exchange for premium content, as long as the ads they're seeing are personalized and the user experience improved.

The advertising sector in general has been affected due to a drop in economic confidence during the Covid-19 pandemic. Reassuringly, Digital TV Research reports that online viewing has increased due to global lockdowns, and that it has been one of the least affected media, as it is one of the youngest and fastest growing. While some statistics point to an overall decline in ad spend, it looks like this investment in TV will continue. According to research by IAB, spending on online TV advertising is expected to be flat for the third quarter. In the fourth quarter investment in CTV/OTT will increase significantly year over year.

Reaching full potential
As adtech becomes more accessible, we are likely to see more medium and small businesses (SMEs) entering the market, including those that have traditionally failed to invest in AVOD. Social media platforms like Facebook and Google have always put the bar high when it comes to personalization and the ability to serve relevant ads. Now, television is starting to be able to match this; Moreover, as trust continues to decline for social media, broadcasters can close that gap, which will be incredibly attractive to brands.

AR and VR will also become increasingly important to AVOD in the future. These models offer new advertising opportunities for brands to virtually place their products in the homes of potential customers, which is simply unprecedented and another great possibility for brands.

AVOD has an exciting future ahead of it, and one that only complements the provision of SVOD and other content provision models due to its distinct goals in the market. For AVOD to reach its full potential, the industry needs to get better at collecting and acting on data, identifying how consumers interact with certain types of ads or content, which in turn can help video service providers to better targeted ads.

*Paloma Santucci is Regional Director for Latin America at Accedo.

Richard Santa, RAVT
Author: Richard Santa, RAVT
Editor
Periodista de la Universidad de Antioquia (2010), con experiencia en temas sobre tecnología y economía. Editor de las revistas TVyVideo+Radio y AVI Latinoamérica. Coordinador académico de TecnoTelevisión&Radio.

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