The Future is AVOD – Pt 1: Why Advertisers Love OTT

In OTT’s nascent state subscription services such as Hulu, Netflix, and Amazon Prime have stolen the spotlight.  It’s time they made room. Advertisers are putting an increased emphasis on OTT. They view the burgeoning technology as an extremely valuable part of their funnel moving forward, and recognize the unique advantages the medium provides. For streaming services able to capture the new ad dollars pouring into the space, the unit economics behind an AVOD business model paint a picture more attractive than that of an SVOD model.  Advertiser’s interest in OTT is soaring, with the total spend on OTT ads growing 40% in 2018 to over $2 billion dollars.  There are several reasons for the growth, but looking to the past we actually see that AVOD is a tried-and-true trick in the marketing playbook. 


Cable, a.k.a AVOD 1.0

Few would argue with the writing on the wall.  Cable, at least as its been known for the previous 70 years, is on the way out.  As the hero of an analog era, little of what cable offered, or failed to offer, figures into the future of entertainment.  However, there is one valuable lesson that can be taken and applied to the world of OTT; video ads work, and brands will pay handsomely to fill inventory that reaches their target market.   For decades, cable provided the major studios with an avenue on which to rake in the revenue from advertising in the form of commercials, sponsorships, and product placement. Advertisers happily paid extreme premiums because at the time, cable was where the most valuable and captive audiences congregated.  Advertising on TV, despite historic roots, fits nicely within the accepted narrative that Millennials and Gen Z have a strong preference for free over paid – willing to be subjected to relevant promotional content if it means not paying. That same dogma that is driving cord-cutting is also fueling the growth of AVOD.  As Netflix and company continue to fight account-sharing abuse, piracy, and increased pricing competition, those offering content to users in return for their attention are sailing into bluer waters. Waters, that are being chummed by advertisers ready to take dollars away from declining cable viewership and pour them into the next big thing, OTT.


Why Advertisers love OTT

For advertisers, the promise of OTT has proven to be extremely lucrative.  By launching campaigns across OTT endpoints, advertisers have unprecedented targeting capabilities; able to reach new highly engaged audiences, and analytics that are not possible through cable.


A 2017 report found streaming TV viewers complete 98% of all ads on videos, meaning OTT ads have the top engagement percent on desktop, mobile, and tablets. OTT audiences also have an increased awareness about brands, and view them more positively than desktop and mobile ad viewers. Engagement is only part of the equation for why advertisers love OTT. The technology allows for more direct measurement of how a specific ad campaign is doing compared to traditional cable. Roku has been a leader in this space, and in January 2018 introduced Roku Ad Insights – a suite to help advertisers measure just how effective their marketing efforts have been. Advertisers can quantify unique campaign reach by demographic, and measure the effectiveness of content promotions across linear TV, OTT, desktop and mobile. They can also measure campaigns delivered specifically to people without traditional TV subscriptions, and gather feedback via live on-screen surveys. This is all opposed to looking at Nielsen ratings on regular broadcast TV.


OTT consumers are worth more and can be better targeted

A new study by IAB published in October 2018 found advertisers see viewers of OTT as an “ incremental, high value audience.”   This perspective is supported by the fact that audiences of AVOD streaming services cannot be reached via cable, with 52% of  AVOD users not owning a cable subscription.


Another reason advertisers love viewers on streaming services is that OTT subscribers are generally more engaged with content than cable. If an individual has gone through the effort to download a vertical app, it means they’re most likely a considerable fan of that genre – this indicator of fandom implies higher engagement and puts the viewer into a certain psychographic profile that has a greater worth to advertisers than cable channel surfers.


The data OTT offers an advertiser does not stop at assumed psychographics. It also provides measurable access to gender-specific, age specific and other demographic criteria for one-to-one targeting.  Meaning advertisers can specifically run a campaign to reach an exact age group and gender in any given location. That level of surgical precision in regards to targeting is nearly impossible to achieve with cable.


To leverage this data even further, advertisers can work with Dynamic Ad Insertion (DAI), a server-side video ad technology that allows them to serve or swap out ads into live, linear or OTT content. All in all, data-driven DAI enables advertisers to target each consumer and deliver ads that are more relevant to them – thereby preserving the user experience.


How can a service take advantage of the new incoming ad spends?

Advertisers are falling in love with OTT, but the infrastructure and marketplaces to make it easy to monetize an AVOD streaming service are still developing.  Just because you have awesome content, a recognizable brand, or even traffic, does not guarantee you will have the high fill, or high CPM’s that OTT is known to deliver.  For many streaming services it can take 6-12 months just to integrate with a proper ad server and then even longer to navigate a marketplace to find buyers for your inventory.  Once more, especially when starting out, it will be difficult to provide enough inventory to give yourself negotiation power, meaning you’re at the mercy of advertisers naming their price. Although obstacles remain one thing is certain, OTT’s rapid growth will be matched by the growth of ad dollars spent on AVOD streaming services. 


This is the first installment of a multi-part blog series “The Future is AVOD” where we will explore:

Part 1: Why advertisers love OTT.
Part 2: Can streaming services scale on ads alone?
Part 3 & 4: Why AVOD is Hard and How Unreel Has Solved it

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