US Streaming Video How Ad Supported Will Reshape the Market

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The 20,000 Foot View:  In the shift to streaming, advertising has been sidelined by the growth of streaming video on demand (SVOD) in the US video market. However, Hulu’s growth, along with increasing competition for consumers’ digital wallet, is helping to make the case that there is an opportunity to replicate traditional pay-TV’s subscription and advertising model. However, the market is now prepping itself for a big push at ad-supported video on demand (AVOD), as illustrated by Viacom’s acquisition of Pluto TV, Sinclair Broadcasting Group’s launch of STIRR, Amazon’s IMDbTV rebrand with European rollout, and NBCU’s Peacock set to move in 2020. However, with streaming consumers being tech-savvy and ad-resistant, AVOD players will have to execute with a supremely high degree of sophistication to fulfil their clear potential. 

Key Insights

• The video subscription market is maturing: multiple digital subscriptions penetration was flat at        in        2019, the same level as        2018
• Traditional TV advertising has an accountability problem:        of linear TV viewers stop paying attention when TV ads come on (more than the all-consumer average)
• Meanwhile, Netflix’s users may be locked behind an ad-free paywall but are more responsive to ads than overall consumers
• With rising content costs and softening subscriber growth, the question is how long Netflix can afford not to mine its advertising revenue opportunity
• With Netflix subscribers seven points more likely than overall consumers to pay attention to shows’ sponsors, smart brand integrations may be the best first step
       of SVOD consumers do not skip relevant ads, compared to        of overall consumers 
• SVOD subscribers are also more disposed to brand partnerships on shows        than the average       
• Streaming audiences are sophisticated and respond best to good targeting – Netflix paid subscribers over-index for target ad responsiveness
• NBCU’s slated 2020 AVOD service looks well targeted, with NBCU fans having the highest propensity to engage with relevant ads       
• Netflix and Amazon users are both receptive to targeted ads while Hulu users are least receptive 
• Disney and Hulu fans both strongly over-index for show sponsor receptivity, indicating clear sponsorship opportunity for Disney’s macro streaming strategy
• AVOD differentiation will increasingly be defined around linear versus non-linear streaming 

Companies and brands mentioned in this report:  Amazon, Amazon Fire, Amazon Prime Video, Apple, AppleTV+, CBS, Cheddar, Comcast, Disney, Disney+, Distroscale, DistroTV, DUST, ESPN, Facebook, Google, Hulu, IMDb Freedive, IMDb TV, NBCU, NBCUniversal, Netflix, Nike, Peakcock, Pluto TV, Roku,  Saveur, Shout Factory, Sinclair Broadcasting Group, Sky, Sportskool, STIRR, TheStreet.com, Vudu, Warner Media, YouTube, YouTube TV