The ADvantage For VOD: Why Streaming Models Are Shifting

You know, it’s funny how many so-called fortune tellers there are in our industry. They may not peer into crystal balls to dictate the future but they do love to predict doom and gloom in place of anything interesting to say.

These are usually the ones who frequently hail the ‘death’ of advertising too, pointing to other revenue streams as if they were the answer to every other problem. Just to put it in perspective, the global advertising agencies market is expected to grow to $383.67 billion this year. Hardly an industry on its knees is it??

Still, naysayers have been plugging this narrative for years, but you only need to look at the video-on-demand (VOD) market, Disney’s recent announcement and Netflix’s u-turn (more on that later) to see how misjudged this is as a blanket statement.?

Last month, The Walt Disney Company revealed they would launch ad-supported video on demand (AVOD) at the end of this year, as it aims to boost its subscriber base to 230 million by 2024. It will be cheaper than the current version and the way Disney pitches it, a win-win-win for all involved. Content providers can improve their reach, users will pay less and brands can interact with a new AVOD audience.?

It’s rarely that simple of course, but this trend towards AVOD adoption is indicative of the market right now. Price wars are heating up and competition is fierce, forcing the big players to rethink their models. In the beginning VODs opted for subscriptions in a market where competition was close to none, believing that the ad-funded model was going to die soon. Ha.

Ironically, it’s gone in the other direction altogether. As the market boomed, the pendulum began to swing the other way as consumers looked for quality content at a lower cost. Now you have Disney transitioning from SVOD to AVOD, following in the footsteps of HBO Max, Hulu and Paramount Plus launching cheaper ad-supported streaming.

Not that long ago Netflix, the original Goliath of the streaming world, didn't exactly deny it would follow suit, saying it wasn’t in their plans right now but ‘never say never.’ Well, as their Q1 results rolled in this week (200,000 subscribers down, shares tumbling 35% and a $50 billion loss in market cap) perhaps that time is sooner than they anticipated.

I thought they were working on something behind the scenes and now that seems almost certain. The CEO has admitted they are open to offering consumers lower prices with advertising on the back of Tuesday’s results, but it will take some time to figure out. My take is that time isn’t on their side. Even before this, Netflix’s revenue growth has been slowing as more rivals entered the space and it’s worth noting that its penetration is not the same in all the countries it operates in.?

You’re only as good as your last piece of content, and while Squid Game was very very good, it’s impossible to consistently churn this kind of success out at the rate Netflix needs to, especially with other factors such as password sharing and inflation impacting their bottom line as well.?

That being said, alongside offering an ad-supported option for consumers, Netflix could also develop business models differentiated by region as a way to thrive in future. Nostalgia will always be on Netflix’s side too. They were the first and remain one of the best, so it’s likely brand loyalty and expansion to low-ARPU regions will help it rebound, but it will be slow going.

The VOD market share is expected to increase by $126.22 billion from 2020 to 2025 at a CAGR of 15.10%. Real-time and high quality video streaming on smartphones and smart TVs is driving this growth, while advancements in technology and higher consumer spending are helping to turbo-charge things.?

AVOD is gaining traction because it increases access to unlimited and free content while monetizing in a way that doesn’t affect the end user. The price for them is customized ads, not unlike the rest of the digital world they navigate day to day. According to TVision, the time spent on AVOD streamed content last year jumped from 9.3% in Q1 to 38% by Q3, while over the same period SVOD’s share of viewing decreased by 8.6% to a 32% share.??

Ultimately, streaming services can’t continue to produce high quality content when subscribers are actively looking to spend less. We’re already seeing AVOD grow in demand, and now expenditure is expected to reach $66 billion across 138 countries over the next five years. When you see figures like that, it’s no longer a trend, but an absolute certainty; the VOD market is changing.?

And with that in mind, hold your horses oracles! Things are not always clear on where technology is heading or where it will take us next, which is why we should be open to change. Comfort = complacency in today’s fast evolving world, but with Disney and now Netflix looking to change up the game, it serves as a stark warning for those that continue to talk about advertising as though it’s no longer relevant.?

Ignore it at your own risk.?

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