Ad-supported video on demand (AVOD) services are facing an increasingly difficult operating environment as more and more streaming platforms get into the space. At least, that was the shared sentiment during a panel discussion dubbed “How Does Anyone Make Money in this Business?” at the XFronts in Los Angeles on Wednesday.
Hosted by home entertainment trade organization OTT.X, the conversation between several industry insiders focused on the rise of AVOD and the challenges it faces holding its own against premium heavyweights such as Disney+ and Netflix.
Erick Opeka, the chief strategy officer at distribution company Cinedigm, suggested that the AVOD space is “more of a gladiator pit than cable ever was.” He posited that that was partially true because, unlike legacy pay-TV operations, AVOD services do not benefit from subscriber-backed carriage fees.
Opeka also said that Cinedigm is “regularly involved in bidding wars” for shows that can become cornerstone content for AVOD services. Though many AVOD services are increasing their original content creation in hopes of attracting new customers, many rely heavily on libraries of well-known shows to keep viewers coming back to the platform. However, to avoid having to pay exorbinant amounts of money for familiar titles, some experts believe that the money would be better spent on developing new programming.
Panelist Jonathan Skogmo, chief innovation officer at Trusted Media Brands, proposed that ad-supported players should focus on “really unique programming, something that’s not already out.”
Opeka noted that marketing costs have also become a big factor for the AVOD industry. He suggested that ad budgets from the major players have broadly increased customer acquisition costs for all streamers — free and premium. “If you’re competing with Netflix, Paramount, HBO Max, the cost per acquisition has skyrocketed,” Opeka concluded.
Sinclair Broadcast Group’s senior director of content Ben Lister advised that a potentially bigger challenge is still yet to come. “As the [subscription video on demand firms] start turning on advertising, I’m not sure how the consumer is going to respond,” said Lister. He recommended that, in order to remain competitive, AVOD operators should “be prepared to make new content.”
Indeed, it’s possible that a move by premium subscription companies could provide the most existential challenge to AVOD to date. After years of avoiding it, Netflix plans to introduce an ad-supported tier in 2022 and Disney+ is already announcing details about how their version will work when it launches later this year. Of course, it’s worth noting that Hulu, Paramount+, discovery+, and HBO Max already offer ad-supported plans, and AVOD is (so far) thriving.