From AVOD to SVOD: Navigating a new streaming landscape

The question is, how should ad and subscription-based models continue to evolve? What should streaming and media companies be aware of, and how can vendors help them provide a reliable, high-quality service to customers while serving up ads, or not?

In the face of evolving consumer behaviour and industry trends, the discussion around ad-supported versus subscription services is gaining prominence, agrees Valentijn Siebrands, solutions architect at M2A Media.

“The recent introduction of an ad-based tier by Amazon Prime Video underscores the growing importance of finding a balance between the two models. Media companies navigating this landscape must also be cognizant of the need to evolve their monetisation strategies to align with changing viewer expectations, as well as stretched budgets and resources,” Siebrands says.

Roger Franklin, chief strategy officer at LTN, also notes that the news that Amazon Prime Video has introduced ad-based subscription tiers should not surprise anybody in the media landscape.

“Once Netflix announced this in late 2022, many expected it would create a domino effect, with other platforms making the move, too. Although it remains to be seen how many ads will be integrated into the service, the move from Amazon Prime Video makes business sense. The Bank of America forecasts that the Prime Video ad tier could make the company $5 billion in additional revenue,” Franklin says.

The rise of ad-based models

Stefan Lederer, CEO and co-founder of Bitmovin, notes that the subscription video on demand (SVOD) business model “reigned supreme for a long time in the world of video, but with consumer spending feeling the squeeze and also consumers beginning to experience subscription fatigue, it’s no surprise that an increasing number of video streaming services are now offering ad-supported tiers to diversify their revenue streams and make their service profitable.”

Bitmovin’s recent Video Developer Report found that advertising will be the biggest growth area for video streaming in 2024, and ad insertion topped the list as the greatest challenge for video developers.

“The results of our report are definitely reflected in the world of streaming because while Netflix made the decision to introduce ads to its service a couple of years ago, its ad experience has lacked personalisation for viewers and requires more robust measurement to meet the needs of advertisers. In contrast, Amazon already has a real opportunity to deliver greater value for advertisers on its streaming service by leveraging its first-party shopping data to ensure its audience views relevant and targeted content that will maximize return on ad spending for advertisers,” Lederer says.

Media companies wanting to introduce advertising-based video on demand (AVOD) or free ad-supported TV (FAST) must be aware of the many components and requirements that comprise the over-the-top (OTT) advertising ecosystems, he comments.

Lederer adds: “The content must be prepared accordingly with ad markers, the workflow must be configured for either client-side (CSAI) or server-side ad insertion (SSAI), the player must render ads in a high-quality manner, and analytics tools are often required to ensure ad performance. Beyond just provisioning various tools, media companies must also ensure everything plays well together to deliver a seamless viewing experience.”

Meanwhile, Richard Dowling, SVP of consulting and founder at ThinkAnalytics, observes that media companies need to consider that customers have a choice and are increasingly happy to use it.

“If they don’t find what they want quickly on one service, they will quickly move to the next. They typically join a service to watch a flagship show, then cancel the subscription if nothing else catches their eye. That means operators need to quickly engage with their users by suggesting content that will appeal to their taste,” Dowling says.

While this is important in the subscription world, it is even more so in the ad-based tier where hours viewing equals ad dollars, Dowling comments.

New approaches

As the media market gets more fragmented and competitive, says Franklin from LTN, expect to see a greater focus on offering hyper-targeted addressable advertising.

“Media companies and advertisers can leverage signalling technology to enable downstream personalisation,” he says. “Powerful signalling provides the capability to use metadata and audio watermarks to share real-time information, targeted advertising, and even new online shopping opportunities with the user.”

According to Franklin, media companies can harness the power of data to tap into a new world of monetisation opportunities through hyper-personalised addressable advertising.

“If implemented correctly — not just timing the ads placements accurately but also making them relevant to both the viewer and the content being watched — these will resonate more with audiences and provide an engaging viewing experience, enabling greater business growth across the ecosystem,” he says.

Marko Hiti, chief marketing officer at UniqCast, suggests that the future might be a hybrid approach.

“Some providers offer both ad-supported and ad-free subscription packages, allowing viewers to choose their preferred experience. Additionally, ad formats are evolving, becoming shorter, more integrated, and even interactive. This hybrid approach might offer the best of both worlds: affordability with fewer disruptions and a wider content selection,” Hiti says.

Mark Strachan, head of media practice at Telstra Broadcast Service, also comments that the evolving market dynamics suggest a more nuanced approach is not only beneficial but necessary.

“The advent of hybrid models, such as ‘freemium’ and metered access, offers a compelling third path that leverages the strengths of both strategies. These models provide a scalable framework for monetization, blending the broad reach of ad-supported content with the premium, personalized experience of subscription services,” Strachan says.

The freemium model, in particular, he adds, stands out for its ability to draw in wide audiences with free, quality content, subsequently nurturing a transition towards paid subscriptions by offering additional value.

“This strategy not only diversifies revenue streams but also ensures media companies remain resilient in the face of economic fluctuations and rapid market shifts. Alternatively, the metered model offers limited free access before introducing a paywall, serving as a gentle nudge towards subscription for users who frequently engage with content. While both approaches have their merits, the freemium model often shows a higher efficacy in converting viewers into subscribers, thanks to its blend of openness and exclusivity,” Strachan comments.

Tom Dvorak, co-founder and chief commercial officer at XroadMedia, notes that the addition of ad-based tiers has become a clear strategy to help attract new subscribers and retain users that may have churned if the only option was to pay a higher price.

“However, in an ad-supported world, it is harder for providers to gain the trust of their users. To build a sustainable relationship with them, providers have to improve the accuracy and quality not only of their entertainment but also of their advertising experience. Traditionally, TV adverts are mainly targeted by utilising demographic or content information at best. Some streaming providers are still siloed in this way; they are not making the most of the data they have available,” Dvorak says.

He points to the need to use machine learning and artificial intelligence to enable providers to understand more about their customers to then deliver a more sophisticated ad experience.

“This can be done by matching entertainment taxonomies with ad inventory taxonomy to drive more relevant ads to users based on their streaming habits. This is an emerging trend, but it will soon become standard, as consumers demand a high level of personal experience. As AVOD advertising opportunities have a particularly short timeframe, compared to traditional ads, there is less time to make an impact,” Dvorak says.

There is, however, just enough time to frustrate users with irrelevant ads, he warns.

“One problem that is apparent today, is that typically in AVOD services, there is a lot of repetition of the same adverts when users are watching content. Prioritising variety, accuracy and relevance will advance advertising strategies further, will keep subscribers engaged and enhance the ROI for both advertisers and providers alike,” he says.

Eric Black, CTO and general manager of media at Edgio, says ad-supported subscription tiers have become increasingly important for premium SVOD services as they aim to maximise subscriber retention and build out additional ad revenues, while existing AVOD services are looking for ways to enhance the value of advertising through more personalised, targeted advertising.

“To capture and grow the widest audience possible, streaming services need to be flexible in delivering and monetising content today and experimenting with multiple service tiers and price points makes business sense,” Black says.

However, enabling this level of flexibility at scale and launching new business models while trying to lower operational costs is incredibly complex and can often require multiple third-party vendor integrations, he cautions.

“More and more, media companies are adjusting their technology investment strategies via a managed services approach to enable greater flexibility and cost-efficiency. A managed services model with all the necessary pre-integrated partner solutions makes it much simpler for media companies to bring new ad-supported services or FAST channels to market quickly and cost-efficiently. Taking this approach allows brands to focus on their business differentiators, audience growth, and content strategies,” he says.

Best practices

Jakub Kruczkowski, strategic business manager at Better Software Group (BSG), comments that AVOD and SVOD models present unique benefits and challenges. To stay competitive and meet consumer demands, both models must adapt without compromising the viewer experience, he says.

“AVOD services, which rely on ad revenue, must innovate in ad delivery to keep viewers engaged. This involves using data analytics to display relevant ads and experimenting with less intrusive formats, such as shorter commercials or those that viewers can skip after a short period of time. Media companies should focus on balancing ad frequency and viewer satisfaction to prevent churn,” Kruczkowski says.

With SVOD models, on the other hand, “the challenge here is to continuously justify the subscription cost through fresh, high-quality content and superior service reliability. As market saturation leads to subscription fatigue among consumers, SVOD services might consider flexible pricing tiers, including hybrid models that introduce a lower-priced, ad-supported tier,” he adds.

Kruczkowski also advises that media companies should be aware of the shifting preferences among consumers, who now more than ever value flexibility, content quality, and a user-friendly experience. Staying ahead requires leveraging advanced analytics to understand viewer habits and preferences, enabling personalised content recommendations and targeted advertising in AVOD scenarios, he comments

“Vendors and suppliers play a crucial role in supporting these models by providing robust, scalable streaming infrastructure, advanced data analytics capabilities, and innovative ad-tech solutions. These tools help media and streaming companies deliver high-quality, reliable service while managing ad delivery in a way that enhances, rather than detracts from, the viewer experience. Whether through AVOD or SVOD, the goal remains the same: to provide value that keeps viewers engaged and subscribed,” Kruczkowski concludes.

Markus Hejdenberg, head of product sales and marketing at Accedo, believes that the video streaming sector is at a crossroads.

“The debate between ad-supported and subscription services is evolving beyond preference to ad relevance and inventory sufficiency. With the advent of low ad tier options, the key challenge for video service providers is not just the availability of ads but their strategic placement and relevance. Competing in a market dominated by entities like Google, which powers programmatic ads for a vast network, including YouTube, raises concerns about inventory saturation and the effectiveness of current ad models,” he says.

Hejdenberg notes that currently, video service providers are constrained to traditional ad formats such as video ad insertions and UI display ads.

“This limitation mirrors broadcast advertising and indicates a significant opportunity for innovation. The industry must explore new ad formats, learning from the dynamic and interactive nature of ads on social media platforms. The challenge lies in convincing media buyers of the value of these innovations and developing metrics to quantify their impact,” he says.

Meanwhile, to cultivate a vibrant ad ecosystem, “video services must democratise ad access, allowing a spectrum of advertisers, from local startups to global brands, to participate. Emulating the self-service advertising models of social media platforms could ensure a diverse and sufficient ad inventory. This approach broadens the advertiser base and enhances viewer engagement through more relevant and diverse ad content,” Hejdenberg remarks.

Martins Magone, CTO at Veset, concludes that the rise of ad-supported services in the broadcast and media industry has certainly increased the debate between ad-supported and subscription-based services in recent months.

Consumer demand is higher than ever, and as a result, many organisations are looking towards contextual advertising and automation to help aid both the quality and rate of content being broadcasted, he says.

“Many solutions now involve some form of automation and AI, which can be extremely useful for consumer analytics and project management in small, remote or evolving teams. With ad-funded services and subscription-based models constantly changing as consumer demand grows, it’s wise for media companies to keep their finger on the pulse and be ready to go to maximise the return from new trends and developments within the industry,” Magone says.