Scott Halpert (VP Ad Products + Business Development)
Understanding AVOD: What Is VOD & What Does It Mean?
VOD means one thing, AVOD another, and SVOD something entirely different. They're all different revenue models in the streaming video space, and they each have their pros and cons in terms of viewer appeal and revenue potential.
In part one of this AVOD educational series, you'll learn all about VOD, AVOD, and all the other acronyms that describe streaming video services today. It may look like alphabet soup, but once you understand what drives each model, the soup starts to look much more appetizing.
AVOD and SVOD are two of the most popular revenue models for OTT streaming video
VOD stands for video on demand
AVOD stands for advertising-supported video on demand
SVOD stands for subscription video on demand
Today's environment favors free ad-supported AVOD services that appeal to subscription-weary viewers
There are several ways to make money in the streaming video space. Some services make money by selling subscriptions, others by selling advertising, and still others by selling or renting programs one at a time (Transactions). To better grasp how the streaming video market works, you need to understand all the different revenue models—and the acronyms used to describe them.
AVOD vs. TVOD vs. SVOD
What Is OTT?
Let's start with the acronym that describes the streaming video space. OTT stands for over the top, which is how streaming video is delivered—"over the top" of a cable system via the internet.
Unlike broadcast television, which sends signals over the airways, or cable television, which sends signals through a coaxial/fiber optic cable, OTT services stream audio and video over the internet. To watch an OTT service, viewers need an internet connection and a playback device, such as a:
Streaming media players, such as Roku and Amazon Fire TV devices that connect to a TV
Video game console that connects to a TV
The internet can bring hundreds if not thousands of OTT services into a viewer's home. Viewers switch between OTT services by choosing that service's app or channel on the playback device.
What Is VOD?
VOD stands for video on demand, a key feature of most OTT services. Video on demand refers to the ability of viewers to choose the programming they want when they want it, instead of being at the mercy of a set programming schedule, as with broadcast and cable television.
VOD is user-customized viewing. Instead of tuning to a channel and accepting whatever is on at the moment, VOD viewers choose the service and the content they want on demand. Most VOD services let viewers pause, rewind, and fast forward the on-demand content.
VOD programming is available over the internet on OTT streaming services and some cable and satellite services—although there is much more on-demand content available from streaming services than the typical cable company offers.
What Is AVOD?
AVOD stands for advertising-supported video on demand, and it's one way many OTT providers can make money. (The other ways are selling or renting content and selling subscriptions, which we'll discuss in the following sections.) Viewing an AVOD service is free or via a lower-cost subscription tier, as the sale of advertising space supports the service.
Viewers either pay lower or no monthly subscription fees to watch an AVOD service versus a service with no advertising. Instead, advertisements are shown during the shows they watch. Watching an AVOD service is a lot like watching broadcast television, at least in terms of commercials. Most AVOD services offer a mix of free on-demand content and topic-oriented channels with pre-programmed content.
The appeal of a free service is obvious, especially as viewers must subscribe to more and more costly subscription services. Today's most popular AVOD services are Amazon's Freevee, The Roku Channel, and Tubi. In addition, the ever-popular YouTube is an ad-supported AVOD service.
What Is SVOD?
SVOD stands for subscription video on demand. Unlike AVOD services, which are free to view, SVOD services charge a monthly subscription fee. Generally, SVOD content is largely ad-free, so viewers aren't interrupted by commercials. Although hybrid pricing models do exist and are discussed below.
Big media conglomerates like Amazon, Apple, Disney, Paramount, Warner Bros., and Discovery own some of the most popular SVOD services today. These paid services include Amazon Prime Video, Apple TV+, Discovery+, Disney+, HBO Max, and Netflix.
What Is TVOD?
TVOD stands for transactional video on demand. TVOD is the traditional on-demand model first popularized by cable and satellite TV services, where viewers pay to watch individual programs at their desired time. Viewers can either rent on-demand programming (available at a lower price during a short viewing window) or purchase it at a higher price, which allows them to watch it at any time.
Most cable and satellite services still offer TVOD programming, typically in the form of blockbuster movies just out of the theaters. In the OTT space, some SVOD services offer TVOD for newer movies. In addition, online video stores, such as the Apple iTunes Store, Redbox, and Google Play Store, offer TVOD content for sale and rental.
Hybrid Models also Exist
Some OTT services offer a mix of AVOD and SVOD programming. For example, NBC's Peacock offers a free ad-supported tier and a paid tier with no ads. Hulu offers a lower-priced tier with advertising and a higher-priced tier without ads. Netflix, a traditionally higher-priced SVOD service, has announced that they're partnering with Microsoft to offer a new lower-priced, ad-supported subscription plan. Hybrid models allow users to pay a lower subscription fee and have their subscription costs partially subsidized by advertising. The subscription revenue also enables SVOD services to produce a growing amount of high-priced original content, designed to attract more viewers willing to pay the monthly subscription fee.
Netflix unveils new ad-supported subscriptions.
Environment for VOD and AVOD Services
The environment for OTT programming has been extremely receptive in recent years. North American OTT revenues could grow at a CAGR of 17.7% between 2021 and 2028—with AVOD growing faster than the streaming market as a whole. A study by Omdia projects that AVOD advertising revenues will reach $259 billion by 2025. That compares to the SVOD market, which could generate just $106 billion in subscription revenues by that time.
Global entertainment revenues, 2010-2025
According to Comscore's 2022 State of Streaming report, the number of U.S. households streaming AVOD services grew by 29% in 2021. That compares to a smaller 21% increase for households streaming SVOD services during the same period.
Today's environment is ripe for the growth of advertising-supported streaming services. Viewers are suffering from subscription overload, having to subscribe to multiple pay services to watch all the original content that's popular today. At some point, consumers' budgets demand that they cut the number of subscriptions they pay for each month, making hybrid-priced and free AVOD services that much more appealing.
According to TiVo's Q2 2021 Video Trends Report, half of all viewers said they either like or don't mind seeing ads when watching TV—especially if those ads support free content. Given a choice, 81% of viewers said they'd rather use a free ad-supported service than subscribe to another paid service.
In the next installment of our AVOD educational series, learn about the top AVOD business models and players in that space.
Let Penthera Help Maximize VOD and AVOD Viewing and Monetization
All OTT services suffer from some common issues. Rebuffering, startup failure, and poor video quality plague services both large and small. When you want to minimize these streaming video issues, turn to the experts at Penthera. Our solutions minimize the major issues that negatively impact the viewing experience, and our 2nd Look solution helps AVOD services deliver more targeted advertising and maximize their ad inventory. There's a reason our solutions are on more than 100 million devices in 36 countries—we help create a better quality viewing experience.
Contact Penthera today to learn more about VOD, AVOD, and how to improve streaming video quality.