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Ad Funded Streamers Eye Europe

Dec 2020. As published in Makers Magazine

AVOD platforms have enjoyed meteoric growth in the US. Can they repeat their success in Europe?
Advertising-based video on demand (AVOD) are winning over TV advertisers and brands, offering a targeted way of reaching a growing number of viewers. The US and China have quickly adopted AVOD platforms, but can they succeed in Europe’s more fragmented market?

Slowly but surely advertising-based video on demand (AVOD) streamers are emerging from the shade of their subscription video on demand (SVOD) cousins.

Certainly, they are enjoying explosive growth in the US. Recent research from Ampere Analysis found that almost one in five US Internet users are now accessing AVOD services such Fox-owned Tubi, ViacomCBS’s Pluto TV, Comcast’s Xumo, Amazon’s IMDb TV and tech firm Roku’s Roku TV.

Although not offering compelling new and original content like the SVODs (around 80% of AVODs’ catalogue is over five years old) these free platforms are able to offer catalogue sizes similar to the major paid for platforms in the US.

Among the most popular AVOD platforms, Tubi offers more than 29,000 titles. Reality TV is a key genre, while the service offers five times as many movies as Netflix. Tubi says monthly active users reached 33 million in August – up 65% year on year, with viewing booming during Covid-19 lockdowns.

Notably, Ampere believes that the two kinds of platforms aren’t competing for exactly the same audiences. Active AVOD users tend to be older than SVOD subscribers, and are more likely to be from lower-income households.

“Free ad-funded platforms will find themselves well-positioned to attract an audience that is either unable or unwilling to pay for multiple subscriptions,” says Minal Modha, consumer research lead at Ampere Analysis.

Underlining the growth opportunities, advertising expenditure on US AVOD platforms is expected to triple from $8bn in 2019 to $24bn in 2025, according to Digital TV Research. China, Japan and India are also significant and maturing AVOD markets.

Having secured a firm foothold in the US, Europe is now on the radar for leading AVOD players.

ViacomCBS launched Pluto TV in Spain at the end of October. It will then roll out Pluto TV in France and Italy in 2021, the French launch being set for the first quarter of 2021. Pluto TV has already launched in the UK, and in Germany and Austria in 2018.

The Spanish version of Pluto TV offers 40 thematic channels and thousands of hours of free content across different genres, and works with 20 content partners such as All3Media, Baniijay, Lionsgate and Fremantle.

Notably, Pluto TV has partnered with Movistar Plus, the Spanish pay TV division of giant European telco Telefonica, which is selling its advertising space in Spain.

Elsewhere, Tubi – which is currently available in the US, Canada, Australia and New Zealand and launched in Mexico in June – has said it is targeting a UK launch.

Other AVOD services such as Plex, sports service SportsTribalTV as well as Roku are also available in Europe, or are gearing up to launch.

So how are AVOD services expected to fare in Europe – will they experience the meteoric growth that the ad funded streamers have experienced in the US?

Many think the European trajectory of AVOD will be very different from the US. Ian McKee, the founder of online programme sales platform Vuulr, notes that the European market is more dominated by broadcaster, pay-TV or telco spin-off AVODs – like ITV Hub or 4oD in the UK – rather than pure-play start-up AVODs. These spin-off AVODs, he says, do not behave as aggressively as the equivalent AVOD platforms in the US.

“There are just not as many start-ups or ‘digital by DNA’ VOD platforms in Europe as there are in the US per square mile,” says McKee. “Europe is actually a fragmented market versus the US which is a single market, and culturally they do sit a little to the right on the diffusion of innovation curve and have a “let’s wait to see “ attitude.

In general, McKee adds, US organisations seems to lean into digital faster with a “it’s better to try and fail than never to try at all” approach.

Max Einhorn, SVP acquisitions and co-productions at producer, distributor and AVOD channel provider FilmRise agrees that the US is embracing digital transformation more quickly and more fundamentally. “We like to think that Europe is a few years behind,” says Einhorn. He echoes McKee’s point about the fragmented nature of the market. The biggest opportunities for AVOD players, notes Einhorn, are in the markets where ad spend is highest, such as the US, China and Japan.

Einhorn, however, is keenly aware of the opportunities for AVOD players. The market is currently small, but “there’s lots of potential.”

“There’s a tectonic shift in the way advertisers are spending their money,” says Einhorn. “In the US, advertisers have really learned that spending in a broadcast manner is a bit of an ineffective way to get returns. Because when you spend in a digital manner, you can actually do significantly more targeting, down even to the household level. So we’ve seen a meaningful shift away from linear.”

Internet-enabled, connected AVOD platforms, of course, allow advertisers to target audiences more effectively, via addressable advertising – something that could be pivotal for revenue growth for ad-supported platforms.

Advertisers are embracing AVOD service, says Tubi chief content officer Adam Lewinson, who describes his service as a kind of free Netflix: “Linear is in secular decline. We’re seeing a trend for media buyers moving their money from linear to digital, and in particular, moving it into AVOD.” 

Mainstream brands – from car manufacturers, fast food restaurants, insurance companies through to drinks firms – advertise on Tubi. “The ad experience doesn’t look and feel that different than watching linear TV – with the exception that we have less than half the ad load of regular TV. It’s much better for the viewer and for the advertiser, because there is less clutter.”

Certainly, experts believe that viewers will sign up to AVOD services in Europe. Already there is sign of ‘subscription fatigue’ among many consumers, and this is likely to accelerate amid the economic challenges caused by coronavirus.

“Ad supported viewing offers an attractive solution to combat subscription fatigue and is a more economically palatable means of viewing content for many,” says Ariff Sidi, general manager and chief product officer, media platform, at Verizon Media. Sidi cites recent research from Rakuten which found that 60% of European consumers would subscribe to an ad supported option to access free content. But he notes that awareness remains a vital issue for platforms, as only 37% of European consumers are aware of ad supported platforms.

“Despite this, the European streaming market continues to grow. Driving greater awareness of entertainment possibilities coupled with consumers having more time to consume content will mean the European AVOD market is primed for growth.”

Sidi believes that the prevalence and penetration of free-to-air TV in Europe compared to the US will aid the transition to ad supported streaming.

The pandemic, as in so many areas, has accelerated trends that many were predicting would take place in the next few years. “We’ve seen a wider adoption of ad-supported viewing across the European market as consumers spend more time at home and continue to show a greater willingness to experiment with new media and entertainment options,” said Sidi.

Like many observers, he expects to see more players adopt a hybrid of subscription and advertising models “to create an attractive proposition for advertisers and consumers and kickstart broader adoption of ad-supported viewing.”

Peacock, the big-budget streaming service of Comcast-owned NBCUniversal, is a good example of a hybrid streaming model. It launched in the US in July with a free-to-view tier featuring over 13,000 hours of programming, and two paid-for tiers with over 20,000 hours of premium content plus live sports.

Meanwhile, Rakuten TV, which offers a TVOD (transactional video on demand) service, launched AVOD channels within its platform in Europe last year.

“I believe that in the medium to long term, we will end up with offerings that are a hybrid of both AVOD and SVOD,” says Vuulr’s McKee. “It will then become the consumer’s choice as to whether they feel affluent enough to pay and avoid the adverts, or would rather have the ads and watch content for free. Indeed, people might toggle between them quite fluidly.

“At the moment, there is a false sense of pitting of AVOD versus SVOD. And in reality, AVOD suits some people, SVOD suits others. In my view – if you’re a platform company, you can let the subscriber choose and so appeal to a much bigger base. However, this has an impact on how rights are acquired.”

McKee says there are other factors to take into account for where AVOD will take off – notably country socio-demographics and credit card penetration: “In parts of the world where people are affluent and there’s a high penetration of credit cards, then it’s easy to see how SVOD is going to be successful. These people are experienced optimisers from a psychographic perspective and they can, and will, spend to have a better experience.

“But then in other parts of the world, for example some of the Asian countries, or African countries where there’s a very low penetration of credit card usage, then payment becomes an issue and AVOD becomes much more attractive because of its simplicity to roll out.”

It’s important to stress that the AVOD market is still at a nascent stage in Europe. The challenges facing new or fledgling ad supported services are significant: there are already strong incumbent free TV players with spin-off AVOD services, and while the AVOD sector itself remains ripe for consolidation, with too many services chasing advertising dollars.

It could be, however, that AVOD platforms will further disrupt Europe’s already challenged free-to-air commercial broadcasters, by offering a huge range of content online for free in one convenient place. So far, the fight between AVOD, SVOD and traditional TV is at the skirmishing stage – expect it to heat up in the next few years.

About Vuulr

Vuulr is the global online content marketplace for Film & TV rights that connects buyers with distributors worldwide. With Vuulr, content discovery and acquisition takes place 24/7 with buyers negotiating directly with distributors, and completing deals online in days, not months.

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