Deeper Dive—AVOD gold rush puts TV advertising on verge of huge 2019

TV
In a world with 150 million Netflix subscribers watching an avalanche of great, new, ad-free programming, why is there a market for early 2000s TV reruns on free streaming apps? (islandjoe/CC BY 2.0)

In the 1940s, there was broadcast TV, and advertisers paid the freight. Local stations beamed network and local programming to rabbit-ear antennas, and viewers watched live, free, ad-supported TV for a generation. It was in black and white, we had to watch it live, we couldn’t skip the commercials, and the whole country loved it.

Then came local cable and satellite delivery, which found wide adoption in the 1980s, and viewers who wanted their MTV, ESPN, Food Network, etc., paid part of the freight on a subscription basis, or what the normals call “the cable bill.” There were still ads, but you could get movies and some originals ad-free on HBO or Showtime if you wanted to pay extra.

From the 1990s to now, a steady evolution from programmable VCRs to mobile devices and smart TVs (heck, smart refrigerators!) and from standard-def cable to 4K streaming have made it easy to watch almost anything you want, on demand, on almost any device, for cheap, and without commercial interruptions. Pay TV service—which has shed millions of U.S. subscribers over the last few years—costs $107 a month and is full of ads, but HD-quality, commercial-free Netflix costs $13 a month and has more quality programming than any mortal has time to watch.

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So why is TV advertising on the verge of a huge 2019 with Viacom buying ad-supported Pluto TV, Hulu dropping the price of its ad-supported tier, Amazon launching ad-supported IMDB Freedive, Comcast announcing plans for an ad-supported NBCUniversal streaming service similar to the U.K.-based NowTV service that Comcast now owns, and WarnerMedia expected to launch an ad-supported service before the end of the year?

“There’s nothing better than free for consumers,” NBCUniversal CEO Steve Burke said this week on Comcast’s earnings call with analysts, “and we have enough product that consumers are currently viewing on other platforms online for free of charge that we think putting it all together in one place with very, very good technology and then leveraging our relationship with Comcast Cable and Sky … is attractive to consumers.”

That NBCUniversal service won’t be free free—it will be “free” to pay TV subscribers—but Burke is certainly right that there’s a large, addressable market for free, ad-supported TV programming on AVOD (ad-supported video on demand) services:

  • Free, ad-supported YouTube has 1.8 billion worldwide monthly active users.
  • On the Roku TV in my living room, I can watch Paul Thomas Anderson’s “The Master” and the first four seasons of “Dawson’s Creek” on the free, ad-supported Roku Channel.
  • On the Amazon Fire TV in the next room, I can watch Tom Cruise’s “The Last Samurai” and all seven seasons of “Without a Trace” on the free, ad-supported IMDB Freedive app.
  • On either TV, I can watch “Rob Riggle’s Ski Master Academy” on Sony Crackle, Martin Scorsese’s “Hugo” on TubiTV, dozens of live channels on Pluto TV and Xumo, and a live feed of ABC News Live or CBSN, all free and ad-supported.

Viewers are watching and distributors are continuing to put more and more money into AVOD, and that’s just the free stuff. You can watch most of the next-day episodes of ABC, NBC and Fox’s shows ad-supported for $6 a month on Hulu—which once had a free, ad-supported service—and CBS shows plus “Star Trek: Discovery” and other originals on CBS All Access ad-supported for $6 a month. You can also pay $4 a month more on either of those services to opt out of ads, but executives from both services have said that more subscribers choose the cheaper, ad-supported options.

So, why? In a world with 150 million Netflix subscribers watching an avalanche of great, new, ad-free programming, why is there a market for early 2000s TV reruns on free streaming apps?

“The same year that Hulu sunset its AVOD offering, 2016, we began to notice a meaningful uptick in consumer interest in free content, with Walmart starting to actively market antennas right next to streaming devices,” BTIG media analyst Rich Greenfield wrote this week in a research note. “Now antenna-based TV viewing is the fastest growing segment in linear TV, with Nielsen reporting that 14 percent of U.S. households are using antennas vs. 10 percent in 2014.”

The best answer, for now at least, is that there’s a big, diversified audience for all kinds of TV—from ad-supported reruns to $13-a-month Netflix—that’s getting more accustomed to watching what it wants and when it wants at little or no cost and getting less willing to pay $107 a month for it. As Greenfield often ends his Twitter posts, #GoodLuckBundle.

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