Ad Supported Video: Proving Skeptics Wrong

While headlines about the media industry are frequently dominated by reports of the “wars” between video subscription services, interesting developments are also transpiring in the less glamorous advertising-supported video on demand (AVOD) market. In 2016, the tech and media industry’s ‘pundit du jour’ NYU’s Scott Galloway famously derided ad-supported entertainment by calling advertising “a tax on the poor and the technologically illiterate”. The market has largely proven him wrong as the AVOD sector grew by 20%+ in each of the subsequent years.

Today, despite the pandemic, advertisers are shifting budgets from linear television to connected TV and ad-supported streaming services even faster. In Q2 2020, the major AVOD services saw a ~30% YoY increase in revenues, while Roku’s recently reported Q3 showed 90% YoY growth in monetized video ad impressions, with first time advertisers more than doubling. Meanwhile, Viacom (~$18bn market cap) just tasked the former CEO of PlutoTV, a ~$340M AVOD acquisition by Viacom, to run their entire streaming strategy.

We believe the AVOD market is here to stay as advertisers find value in the combination of scale that TV advertising brings generally, attractive audience demographics, and improving digital targeting capabilities. The largest AVOD audience segment is 18-to 34-year-olds — certainly a technologically literate demographic and long considered one of the most lucrative for advertisers based on purchasing habits. By contrast, broadcast and ad-supported cable TV audiences are, on average, in their late 50s.

For premium content owners, this segment represents an additional revenue stream, which is proving to be far less cyclical than many expected.