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The Global Attraction of Advertising Video on Demand (AVOD)

Sofia Mueller-Lundberg

Head of Marketing

October 7, 2020


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According to Digital TV Research, global Advertising Video On Demand (AVOD) revenue will reach $56 billion by 2024. OTT video providers are increasingly finding that consumers are prepared to sign up for ad-funded services if it gives them access to the content they want. The rise of targeted advertising is also having an impact because consumers are less likely to be irritated with ads if they are relevant to their interests and preferences (which developing ad technology and data usage is helping to more precisely pinpoint).

The landscape is different across the globe, with AVOD especially popular in certain parts of the world. This article will, therefore, explore the latest trends in the global AVOD market and those shaping the growing popularity of the model.  

Improvements in technology

The AVOD model had traditionally lagged behind its more popular counterpart Subscription Video on Demand (SVOD). In 2018, SVOD platforms generated just over $35 billion, while AVOD revenue reached around $21.9 billion in the same year. Change does, however, seem to be on the horizon, with recent estimates predicting that AVOD revenues will reach a huge $56 billion by 2024.

The crowded nature of the SVOD market is likely to be one contributory factor: the subscription model has dominated up until now, but market saturation is most definitely affecting consumers’ willingness to pay for yet another service. These days, consumers have access to an abundance of choices and are increasingly enthusiastic about the idea of what is often touted as ‘free’ content in exchange for ads.

The emergence of AVOD is closely connected to the rise of sophisticated advertising technology which is helping to improve the monetization of AVOD content. It’s now possible to deliver advertising which is much more targeted to the individual viewer, understandably improving the user experience of the service. These advertising slots are also significantly more high-value, given that the conversion rate of targeted ads is likely to be higher than those of a generic nature.

As a result of this targeting, viewers are becoming less frustrated by the ads served to them and are happy to compromise in exchange for premium content. Younger people in particular are more likely to subscribe to AVOD and have a higher tolerance for ads. This could be because the demographic is so used to being exposed to advertising on social media and other web-based services, or due to lower disposable incomes.

Attractive markets

By 2024, North American VOD platforms will be generating $20.3 billion alone, only $1.6 billion below the global revenue figure for 2018. But it’s in developing markets that we are likely to see the biggest growth in AVOD’s popularity. In APAC, Digital TV Research predicts that revenues will reach $13.3 billion, a significant portion of global overall revenues considering AVOD’s infancy in the region. Sub-Saharan Africa, Latin America, and MENA are all growing markets for AVOD and all three will see their forecasts double between 2019 and 2024.

Currently, in Latin America, that market is dominated by YouTube, with it accounting for more than 90% of the advertising revenue in the region’s AVOD market, according to Dataxis. Perhaps YouTube’s dominance will pave the way for other providers to adopt the same model. This is also apparent from a number of newcomers that recently entered the market, including PlutoTV, Roku, and Plex. As highlighted in an article in Latin America Business Stories, ad-supported models need good content and good user experience, and that means partnerships with platforms, studios, and channels. Roku has both a range of global content partners and local ones from the new markets. In Brazil, that includes Globoplay, the service of the largest open TV channel and communication group in Latin America.

Advertising-funded models are particularly attractive to those in developing countries due in part to low disposable incomes. It is also an alternative to pirated SVOD content, which we know to be a huge challenge for content providers in these regions. On top of this, much of the video consumption in developing markets, particularly in APAC, is done on mobile devices. This often means that there is much more user-specific data available to the service providers, which can be used to more precisely target and personalize ads.

Whether it’s in developing regions or established markets, viewers are increasingly happy to be served ads in exchange for premium content as long as the ads they are seeing are personalized and the user experience enhanced.

The advertising sector as a whole has taken a hit due to a fall in economic confidence during the Covid-19 pandemic. Reassuringly Digital TV Research reports that online viewing has increased due to global lockdowns and that online advertising has been one of the least affected mediums as it is one of the youngest and fastest-growing. While some stats are pointing to an overall decline in ad spend, TV ad spend looks set to continue. According to research by IAB, Linear TV ad spend is expected to be flat for Q3, down in Q4, while CTV/OTT investment will increase significantly year over year.

Reaching its full potential

As sophisticated adtech becomes more accessible, we’ll likely see more small and medium-sized enterprises (SMEs) entering the market, including those that have traditionally been unable to invest in AVOD. Social media platforms like Facebook and Google have always set the bar high when it comes to personalization and the ability to serve relevant ads. Now, TV is starting to be able to match this – plus, as trust is continuing to decline for social media, broadcasters can plug that gap, which will be incredibly attractive to brands.

AR and VR functionalities are also bound to become increasingly important for AVOD in the future. These models offer new advertising opportunities for brands to virtually place their products in the homes of potential customers which is simply unprecedented and another huge possibility for brands.

AVOD has an exciting future ahead, and one which only complements the provision of SVOD and other models of content provision due to their different target markets. For AVOD to reach its full potential, the industry needs to get better at collecting and actioning data, identifying how consumers engage with certain types of ads or content, which in turn can help video service providers better-targeted ads.

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