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  • Writer's pictureChristina Castellano

The Biggest Advertising Challenges in VOD

Man experiences ad unit failure loading watching streaming video on an iPad.

The Biggest Advertising Challenges in VOD

What are the most significant advertising challenges for video-on-demand (VOD) programmers and advertisers? The advertising-supported VOD (AVOD) market is growing rapidly, but that doesn't mean that AVOD advertising is easy or trouble-free. To cash in on the growth of VOD advertising, you need to know what challenges exist and how to work around them.

Key Takeaways

  • Advertising-based VOD is on the rise

  • VOD advertisers and programmers face a variety of challenges, including high production costs, a fragmented marketplace, measurement challenges, and difficulty in targeting specific users

  • It's also difficult to determine the direct impact of VOD advertising—and to gain the support of reluctant executives

  • Ad inventory is also a problem, as is increasing competition, viewer ad avoidance, and ad delivery failure— which technological solutions from Penthera and other companies can mitigate

Advertising-Based VOD Is On the Rise

Multiple VOD models are fighting it out for streaming viewers today. These monetization models include:

  • Advertising-based video on demand (AVOD), where viewers get free or reduced-price ad-supported programming

  • Subscription-based video on demand (SVOD), where viewers pay a monthly subscription fee for ad-free programming

  • Transactional video on demand (TVOD), where viewers buy or rent content on a per-transaction basis

  • Hybrid video on demand (HVOD), which combines two or more VOD models into service with multiple tiers

Of these different models, AVOD is showing the most growth. According to Deloitte's Digital Media Trends, 16th Edition, 59% of U.S. viewers prefer a free or low-cost streaming service with advertising to just 41% prefer a subscription-based service without ads. Nielsen reports that AVOD services accounted for 26% of the streaming market in 2021, up from 24% the year prior – even as overall OTT subscriptions are down. It's clear that viewers like ad-supported VOD services, despite the many challenges faced by supporters of the format.

U.S. CTV/VOD ad spending 2019-2024.

Unique Challenges to Advertising-Supported VOD

While a significant potential for growth and impact exists, AVOD is not without issues for advertisers and programmers. Here are ten of them—all easily overcome.

Top 10 trends to improve OTT advertising.

High Production Costs

AVOD is not the most budget-friendly form of digital advertising available today. It costs more money to produce a television ad, even for streaming media, than it does to produce a similar web ad for computers and smartphones. The high cost of ad creation scares some potential advertisers who don't look at the possible return versus investment.

There are many ways to minimize production costs, however. For example, running similar ads across multiple AVOD services can mitigate ad production costs. You can even repurpose an ad designed for VOD to run on the web and social media platforms. It's all about getting the biggest bang for your ad development buck.

VOD Marketplace Is Fragmented

There's no denying that there are many players pursuing the ad-supported VOD market. It's not like the centralized days of the big three broadcast television networks. There are literally dozens of AVOD services competing for space in today's streaming market.

With such fragmentation, it is challenging to pick just one platform on which to advertise and almost impossible to advertise on them all. You need to choose a small handful of streaming platforms that best target your user base and provide content that compliments your products and services.

Accurate Measurement Is Challenging

Unlike web advertising, which can be tracked down to the individual user, tracking the effectiveness of VOD advertising is considerably more challenging. Even though AVOD is more easily trackable and attributable than broadcast TV, measuring AVOD performance isn't near as granular as it is with cookies-based web video. To make it worse, there is no industry standard to track viewer statistics across the three major streaming media hardware platforms (Roku, Amazon, and Google).

Not as Targeted as Other Digital Advertising Media

Because of this lack of granular tracking, it's more difficult to target specific AVOD audiences than with other digital media. While available data on AVOD viewers can get an advertiser close, it can't pinpoint individual users. Advertisers won't know what specific households they're targeting—at least with AVOD data alone.

If you combine data from streaming services with your own first-party data, you can more precisely target consumers interested in your products and services. Focus on data that shows what products consumers are interested in, what brands they like, and other key demographic data. This will let you reach new customers with similar characteristics to your known customers.

Difficult to Determine Direct Impact on Sales

It's also different to ascertain whether AVOD advertising is directly related to product sales. As with broadcast TV, there's no easy way to draw a direct line from an AVOD ad to a specific customer sale.

This lack of attributability spooks some advertisers who've grown accustomed to the per-customer tracking available with web advertising. However, just because you can't track specific sales doesn't mean AVOD advertising isn't working. You have to look at the bigger picture.

It's So New Not Everybody Understands It

OTT advertising has been around for several years, but it's still brand-new to many in the industry. This lack of familiarity and experience may cause some execs to adopt a hands-off policy when it comes to AVOD advertising. The only way to get around this lack of understanding and trust is to run some test ads and show the results to those reluctant execs. The proof, as the old saying goes, is in the pudding.

Quantity of Ad Inventory

It's not only advertisers that face challenges with VOD advertising. AVOD services also face many challenges, not the least of which is the quality and quantity of available ad inventory. Because VOD advertising is still relatively new, it's slow to be adopted by many advertisers. This, combined with a multitude of AVOD platforms (and more launching seemingly every day), sometimes results in too few ads chasing the available ad spots. When viewers keep seeing the same ads over and over during a program, that's a lack of ad inventory.

Increasing Competition

Some OTT services have the opposite problem—too many advertisers fighting for too few ad spots on the most desirable programs. That's a good problem for programmers to have but a bad one for advertisers to face. Increasing competition for ads on top-tier content can drive up ad rates faster than one might expect for this still-nascent medium. It's not a problem that's going away, either. As more brands embrace VOD, the competition will only become more intense.

Ad Avoidance

A growing number of advertisers competing for VOD ad space doesn't mean viewers are as excited. Ads are still intrusive, and not all viewers like that. According to MIDIA Research, 49% of all viewers skip online video ads. If your ads aren't relevant and engaging, viewers will likely ignore them.

Percent of viewers who skip video ads.

Ad Delivery Failure

The final challenge for both VOD advertisers and programmers is ad delivery failure. Technological problems such as re-buffering, startup delays, and poor-quality video and audio can adversely affect the ad viewing experience. Penthera's own research shows that 40% of VOD ads fail, resulting in billions in lost revenue.

Bottom Line: Improve Ad Delivery for More Effective VOD Advertising

Overcoming these challenges is paramount for VOD advertisers and programmers. Fortunately, many streaming solutions are available to minimize the technological issues facing AVOD ad delivery. In addition, Penthera's 2nd Look solution helps AVOD services maximize their ad inventory and deliver more targeted advertising to their viewers. Maximizing VOD advertising revenue is all about recognizing the challenges and working to minimize them.

Contact Penthera today to learn more about how to minimize the challenges facing VOD advertisers and programmers.


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