The entertainment industry is going through a digital transformation with streaming services fast becoming the preferred way for consumers to access content anywhere and anytime. While Subscription Video on Demand (SVOD) services like Netflix, Amazon Prime Video and Disney+ dominated the landscape for a long time, a new challenger has emerged in the form of Advertising Video on Demand (AVOD) platforms.

What are AVOD services?
AVOD services or Advertising-Supported Video on Demand refers to streaming media services that are supported by advertising revenues instead of subscriptions. Some of the popular AVOD platforms include Youtube, Pluto TV, Tubi TV, Roku Channel, Sling TV and Peacock among others. These services allow users to access a large library of movies, TV shows, live channels and more completely free of charge in exchange of watching short advertisements.

Rise of the cord-cutters
One of the major factors fueling the growth of AVOD platforms is the growing number of cord-cutters - people who have canceled their cable or satellite TV subscriptions. According to estimates, around 18% of US households have done away with expensive cable packages in 2021 alone. Cord-cutting is high among younger demographic groups who are embracing streaming as their preferred way of entertainment consumption. Since AVOD services offer on-demand content and live TV channels at no additional costs, they are becoming an attractive alternative for cord-cutters seeking value.

Revenue potential of targeted ads
While SVOD platforms generate revenues from monthly subscription fees, AVOD services rely majorly on advertising money. However, the ability of AVOD platforms to deliver precisely targeted ads based on user interests and behavior has increased their revenue potential. Especially with the usage of data on what content users are watching, at what point they are dropping off and other engagement metrics, AVOD platforms can demand higher ad rates from marketers. Some analysts note that the measurable impact of ads on AVOD platforms make them more lucrative than traditional TV for advertisers.

Expanding content libraries
One way in which AVOD services are challenging their premium SVOD rivals is with the expansion of content libraries. Platforms are investing heavily in procuring rights to movies, TV shows from various studios and networks as well as creating exclusives original programming. For instance, Peacock has secured rights to popular franchises like The Office, Parks and Recreation and Married...with Children apart from producing acclaimed shows like Girls5Eva and Bel-Air. Similarly, Tubi has a massive library of 20,000+ movies and TV shows along with exclusives like Depraved and The Freak Brothers. With expanded content offerings, AVOD platforms are giving viewers more reasons to ditch subscriptions and switch to free ad-supported alternatives.

Monetization through additional features
Some AVOD services are devising additional monetization tactics apart from traditional advertising. For example, Pluto TV has introduced new features like 4K streaming and offline download access through a small monthly subscription fee. Roku Channel now allows premium subscriptions to partner channels like Starz, Showtime and Epix directly through its platform. Such value-added features help bolster revenues while providing extra perks to engaged super-users. Similarly, platforms like Peacock and Tubi are introducing transactional rental/purchase options for newer movies to earn revenue share from consumer spending.

Increased Investments and partnerships
Recognizing the disruptive potential of AVOD platforms, major media companies and tech giants have significantly scaled up their investments. For instance, ViacomCBS merged its Pluto TV business with the AVOD service Ptain After acquiring Xumo for a reported $100 million in 2021. Roku acquired Quibi's content library for $100 million to add premium titles to its arsenal. Similarly, Amazon Prime Video struck deals to make IMDB TV available across Fire TV devices worldwide. Such big-ticket investments and partnerships will help the existing AVOD players consolidate their presence while enabling new services to emerge and compete more aggressively.

The future looks bright
With advantages like large user bases, targeted ads, expanded content libraries and innovative monetization streams, AVOD services are well positioned for exponential growth in the coming years. eMarketer estimates the US AVOD advertising revenues will surpass $11 billion by 2024. Consumers will continue migrating to 'free-to-stream' platforms cutting across demographic cohorts and thus boosting viewership. The imminent launch of new ad-supported offerings from Apple and WarnerMedia and escalated competition from incumbents makes it an exciting time for this video entertainment model. While AVOD players still have a long way to catch up to the SVOD leaders, the future certainly looks promising for these advertising-driven streaming alternatives