THE AVOD ECOSYSTEM: As cord-cutting shifts the revenue model of media companies, the ad-supported streaming space is poised to take off — here are the key players brands need to know, and how to work with them

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The video streaming marketplace has expanded to include a widening set of ad-supported OTT video platforms, across both free and hybrid (subscription-based and ad-supported) offerings. And, as these services grow, ad-supported OTT will become an increasingly important channel within media plans as a way for ad buyers and brands to add incremental reach to their linear TV campaigns.

A wave of new movement in the ad-supported streaming video space has accelerated over the past 12 months:

• In 2019 and early 2020, media companies including ViacomCBS, NBCUniversal, and Fox Corp. have each acquired free, ad-supported TV services, including Pluto TV, Xumo, Vudu, and Tubi.
• Meanwhile, after Disney gained majority ownership and full operational control of Hulu last May, NBCUniversal and AT&T's WarnerMedia each announced plans to launch their own ad-supported SVOD services — Peacock and HBO Max, respectively — which are each forthcoming. (At launch, HBO Max will be ad-free, but will have an ad-supported tier sometime in 2021.)
• Further, CTV device-makers including Roku, Samsung, and even Amazon have increasingly emphasized their own advertising inventory. The majority of ad sales that go to each company come from CTV inventory sold on other publisher apps carried on their devices: Roku and Amazon each take a 30% cut of ad sales from inventory sold on partner apps. But a portion of advertising revenue has also resulted from increased viewership on their own free AVOD platforms that are integrated into and prominently displayed on their devices, including The Roku Channel, Samsung TV Plus, and to some extent, Amazon's IMDb TV.

OTT video advertising offers some benefits over linear TV to advertisers looking to reach audiences on premium video content — but brands and media buyers still face several frustrations with advertising on ad-supported OTT. OTT video advertising is considered to be more efficient and less wasteful compared with traditional TV because it's more addressable — meaning it has more granular, audience-based targeting capabilities. But advertisers must also navigate several challenges that will impact their strategies in this area. These challenges include considerable fragmentation in the long tail, low service differentiation among some AVOD services, a lack of standardized measurement, and a confusing assortment of different ways to buy the same or similar inventory.

In The AVOD Ecosystem, Business Insider Intelligence examines the expanding range of major, growing, emergent, or forthcoming ad-supported OTT services in the US. We look at how ad spending is growing on ad-supported streaming, based on the rise of connected-TV advertising, and why cord-cutting is likely to drive additional spend. We further assess the state of consumer interest in AVOD in the US, in terms of the share of time spent with streaming video and user growth, and identify how multiple factors including the coronavirus are boosting usage. Finally, we discuss how ad buyers and brands are approaching these services, and outline emerging opportunities for advertisers as well as ongoing challenges.

We focus our discussion of AVOD on the free AVOD services (e.g. Tubi, Pluto TV), hybrid SVOD/AVOD (e.g. Hulu), and CTV services (e.g. The Roku Channel). Given its size and importance, this report also includes discussion and figures about YouTube. For the purposes of this report, we exclude analysis of other platforms that fall under the technical definition of ad-supported OTT, including: social platforms that feature ad-supported digital video like Facebook, Twitter, Snapchat, and TikTok; livestreaming video platforms like Twitch; and skinny bundles (or vMVPDs) like Sling TV and YouTube TV.

The companies mentioned in this report are: AB InBev, AT&T, Amazon, Capital One, Disney, Eko, Facebook, Fox Corp., General Mills, Hulu, L'Oreal, NBCUniversal, Netflix, PepsiCo, Procter & Gamble, Quibi, Roku, Samsung, Snap, State Farm, Taco Bell, TiVo, TikTok, Twitch, Unilever, Verizon, ViacomCBS, Vizio, Walmart, WarnerMedia, YouTube.

The ad-supported OTT platforms mentioned in this report include: CBS All Access, Crackle, ESPN+, HBO Max, Hulu, IMDb TV, Peacock, Plex, Pluto TV, Quibi, STIRR, Samsung TV Plus, The Roku Channel, TiVo+, Tubi, Vudu, WatchFree, Xumo.

Here are a few key takeaways from the report:

• A large part of video advertising that goes to ad-supported OTT platforms is driven by connected-TV advertising sales, since the majority of viewing on these platforms happens on TV screens. In 2020, US advertisers will spend $7.99 billion on CTV advertising, up from $6.38 billion in 2019 — and that spending will surge to $13.62 billion by 2022, according to an eMarketer forecast updated in June. Of total ad spending on CTV, the overwhelming majority of spend comes from video ads, with a small remaining portion going to display ads that appear on CTV platform interfaces.
• To reach a growing population of cord-cutters and cord-nevers, agency ad buyers and brands will increasingly need to supplement their TV ad campaigns with OTT video inventory. The vast majority of advertisers are already using digital video to add incremental reach to TV ad campaigns: 78% of US marketing and agency execs surveyed in October 2019 said that they buy digital video inventory to TV ad campaigns to add reach, according to a FreeWheel survey conducted by Advertiser Perceptions in October 2019.
• That incremental transfer of ad dollars into OTT will grow in 2020 and into 2021, particularly as TV advertisers expect to dramatically reduce TV ad spend and shorten upfronts commitments. As ad buyers prepare for a significantly disrupted TV upfront market in 2020 amid uncertainty around the return of live sports and the availability of other premium programming, half (50%) indicated that they believe they can make up necessary GRPs from TV — or gross ratings points — using OTT, CTV, or digital video advertising inventory, according to a recent Advertiser Perceptions survey of media-buying executives.

In full, the report:

• Analyzes consumer usage and preferences around ad-supported OTT services.
• Discusses how ad spending is growing on ad-supported streaming platforms, alongside the rise of connected-TV advertising.
• Identifies and examines the outlook for key players and purveyors of ad-supported premium video, including hybrid AVOD/SVOD services (e.g. Hulu, CBS All Access), free AVOD services (e.g. Pluto TV, Tubi), and connected-TV platforms (e.g. The Roku Channel, Samsung TV Plus).
• Explains how advertisers are approaching AVOD services, and how they can navigate ongoing challenges in the buying process.
• Contains 54 pages and 19 figures — including 3 landscape grids.

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