Understanding AVOD Part 2: Business Models and List of Top AVOD Platforms
People watching a virtual wall of AVOD content.
Part two of Penthera’s four educational series, “Understand AVOD Business Platform”. Read part one, “The AVOD business model benefits publishers, advertisers, and viewers.”
Advertising-based video on demand, or AVOD, is the fastest-growing revenue model for OTT providers. What are the top AVOD business models—and which are the top AVOD platforms? In Part 2 of this AVOD educational series, you’ll learn more about how AVOD platforms generate revenue and which ones are best at it.
The AVOD business model benefits publishers, advertisers, and viewers
The largest AVOD publishers, in terms of usage, are Pluto TV, Tubi, and the Roku Channel
The biggest industries advertising on AVOD services include media and advertising, communications, and automotive
AVOD viewers skew older than SVOD viewers and tend to come from lower-income households
AVOD is just one of several business models in the OTT industry. AVOD exists alongside, and competes with, three other primary business models:
AVOD: Advertising-based video on demand—free or low-cost services supported by advertising revenue
SVOD: Subscription video on demand—services supported by monthly subscription fees
TVOD: Transactional video on demand, or pay-per-view—content sold or rented on a standalone basis
HVOD: Hybrid video on demand—a hybrid of AVOD, SVOD, and TVOD models in a single service
The AVOD business model benefits all parties:
Viewers get free or low-cost programming without the need for costly subscriptions
Advertisers get higher ROI for their ad spend with highly targeted ads
OTT providers get increased advertising revenue, often without having to spend big bucks on original content
OTT publishers assemble a variety of programming for their viewers to watch and monetize their content by selling advertising space within the programming. They don’t all do it the same way, however.
Some AVOD providers—dubbed free ad-supported TV or FAST—offer all their content to viewers for free. These services, such as Crackle, Pluto TV, The Roku Channel, and Tubi, are fully ad-supported, not relying at all on subscription fees.
(The following video details how Pluto TV pivoted to the FAST model.)
How Pluto TV pivoted from AVOD to FAST.
Other AVOD providers, such as Hulu, Paramount+, and Peacock, offer a hybrid model with multiple tiers. Their higher-priced tiers are commercial-free, while their lower-priced tiers include advertising. (The ads support a reduction in the monthly subscription price.) Viewers still need to subscribe, which they don’t in the FAST model, but they get a big discount by agreeing to sit through commercials.
Note that most FAST services don’t have much if any, original content; instead relying on a stream of older movies and vintage TV shows. The hybrid providers are home to more original content, which makes them both publishers and content creators—and attract viewers willing to pay a modest monthly subscription fee.
In the AVOD business model, advertisers support the publishers by purchasing ad space during programming. Advertisers like AVOD advertising because it’s familiar, like traditional television advertising, yet also more effective.
That’s because commercials on AVOD services can be more targeted than traditional broadcast or cable television commercials. Streaming services collect more detailed information about their viewers than was previously possible, and they use that data to more closely match advertisers with specific consumer types—or, in some instances, specific consumers. This enables advertisers to produce more targeted and better-performing ads, enabling AVOD services to charge higher ad rates.
Because advertisers are able to use OTTs to so specifically target demographics or individuals, it makes the ad content more relevant to viewers, who are then more willing to watch ads in order to benefit from a reduced, or eliminated subscription fee.
AVOD Role Players
AVOD is attracting a diverse mix of publishers, advertisers, and viewers. It’s a synergistic relationship between the three, although some major players are evolving.
What are the biggest AVOD services today? It depends on what you measure.
Looking at market share or percentage of users, Parks Associates ranks the top six AVOD providers as:
The Roku Channel
IMDb TV (now Freevee)
Top AVOD services based on usage.
Looking at publishers in terms of advertising revenue generates a different list of leaders. Kantar ranks the top four revenue-generating AVOD services as:
Hulu ($2.1 billion in revenue)
Paramount+ ($822 million)
Peacock ($279 million)
Tubi ($250 million)
Kantar reports that the entire AVOD category generated approximately $8 billion in ad spending in the twelve months ending September 2021. Other big AVOD players include IMDb TV (now Freevee), Tubi, and The Roku Channel.
Both of these analyses ignore the biggest AVOD platform, however, both currently and historically: YouTube. While not strictly a competitor to Pluto TV and Hulu, YouTube now operates a hybrid model; ad-supported video and SVOD with no ads. YouTube generated more than $28.8 billion in revenue in 2021. That dwarfs the advertising income from the other platforms and, with more than 2.5 billion monthly users, proves how much potential exists with the AVOD model. However, YouTube has predominantly short-form user-generated content and faces criticism for repetitive/irrelevant ads. While YouTube does garner a lot of attention and ad revenue, they are not necessarily in the same consideration set as Hulu, Paramount+, etc.
The AVOD business model attracts a large number of advertisers across a wide variety of industries. According to Kantar’s research, the industries spending the most money on AVOD advertising include:
Media and Advertising
Capital One is the single most prolific purchaser of ad space, spending $74 million on AVOD in the twelve months ending in September 2021. Other big spenders were Verizon ($57 million) and Geico ($50 million).
The AVOD audience is slightly different from the audience for subscription services. Research from Ampere Analysis finds that AVOD viewers skew slightly older than SVOD viewers. Fewer AVOD viewers are under 35 years of age, while substantially more are aged 45 or higher. That said, what is driving this metric is unclear at this point. There are a number of factors that can underlie the demographics of each type of delivery. Additionally, this data seems somewhat counter-intuitive given that the 35+ age bracket typically has more disposable income to spend on SVOD services. This is another indication that it's early days in the market and we should expect to see meaningful demographic shifts over time.
Age breakdown of AVOD and SVOD viewers.
In the next installment of our AVOD educational series, learn about the AVOD market size and growth potential.