As viewer interest in ad-supported video on demand accelerates, marketers are trying to determine how to navigate the channel and avoid new walled gardens.

The rise of ad-supported video on demand (AVOD) services has been a quiet development amid numerous new consumer behaviors spurred or accelerated by the coronavirus pandemic. Yet the proportion of consumers using an AVOD service is now noteworthy, having increased from 34% in February 2020 to 58% in February 2021, according to Hub research emailed to Marketing Dive.

As pandemic-era behaviors calcify, AVOD looks poised to become an important marketing lane, especially as other trends — like consumer fatigue over paying for multiple subscription video services (SVODs) and a tightening data privacy landscape — affect digital channels.

"If the consumers are migrating towards VOD, whether it's SVOD, or AVOD, [marketers] are going to have to follow up in that way," said Jim Spaeth, co-founder of marketing analytics firm Sequent Partners.

The maturation of AVOD means further fragmentation of digital marketing channels, but also potentially new opportunities to engage viewers for marketers who understand how the use case differs from subscription video services.

"We've been seeing an escalating trend of creative being used for both traditional TV and all of these new end destinations, but also an explosion of content being created for these sort of bespoke consumer moments, with a substantial increase in ads going to AVOD, streaming, CTV and OTT," said Melinda McLaughlin, CMO at ad asset management firm Extreme Reach.

Targeting and measurement

As consumers find a convenient entertainment solution in AVODs, marketers are following them to the channel and finding plenty of inventory, as AVODs operated by media companies (ViacomCBS' Pluto TV, the free version of NBCUniversal's Peacock) and original equipment manufacturers (LG's Xumo, Samsung TV Plus) look to build out their ad businesses. Still, at this point, the inventory might exceed demand — one of the reasons for an ad experience where consumers see the same ad repeated. This is likely to change as marketers further embrace the channel and better understand how it works.

"Advertisers haven't completely jumped in to all of this CTV/OTT yet because of the measurement issue: they haven't really been able to understand the incremental reach from linear, or from premium video," said Jane Clarke, CEO at the Coalition for Innovative Media Measurement (CIMM).

Still, AVOD offers the promise of digital targeting and measurement in a TV-like video environment without the use of third-party cookies or Apple's Identifier for Advertisers (IDFA), which will soon be restricted or deprecated altogether. While marketers determine how these changes will affect their strategies on Google, Facebook and other digital platforms, AVOD could be a place to reallocate spend thanks to its targeting capabilities.

"A marketer can bring their own data to any of these providers — Hulu, Samsung, Roku — and they can match their data in privacy compliant ways, find their target audience and they can match other data to find prospects that they might not have," Clarke explained.

AVOD and CTV offer marketers the ability to create audience segments, optimize campaigns, manage frequency and get attribution data on the backend, which Clarke described as "the whole picture." However, as content that fits somewhere between traditional TV and digital video, AVOD is yet to be fully utilized.

"It's appealing to marketers, but it's just new enough that it doesn't fit into all their models — it tends to be out there as like a test plan," she said.

New walled gardens

While AVOD offers marketers a wealth of targeting and measurement capabilities, the proliferation of platforms — whether Roku, Pluto, Tubi or Xumo — further fractures an already fragmented media market.

"We used to complain about the two big walled gardens, while we probably now have 15," said Sequent Partners' Spaeth. "It really challenges the promise of advanced television, because you can certainly do all that measurement and all that targeting and all that optimization within your walled garden, but you can't coordinate… You have no idea how much frequency this particular viewer has had elsewhere."

The problem has been exacerbated by OEMs like Samsung, LG and Vizio that originally worked to license their data to different measurement applications before pulling back to create walled gardens, CIMM's Clarke explained.

"You can only get that data, if you buy advertising in their environment now, but then what that does is make more work for the agencies to pull that all together. And that tends to drive people to the DSPs, to the networks, the exchanges, whatever they are," she said.

To a consumer, who may have a Samsung in the living room and an LG in the bedroom, for example, the AVOD offering is more opaque and the ad experience more frustrating.

"Walled gardens work against the consumer and I think that that destroys value," Spaeth said.

Subscription fatigue

Despite their challenges, AVODs — with no price tag and libraries of familiar, comfort-viewing content — have become a more attractive option for consumers as the pandemic put pressure on the economy and forced them to rework their housebound habits. And while SVODs like Netflix, Disney+ and HBO Max are buzzier, consumers were already feeling fatigued by subscriptions as costs piled up.

"There's got to be some breaking point where people say, 'I can't take something else on,' and then AVODs come in," said Peter Fondulas, Hub Entertainment Research principal. "This is a way to fill your time — especially if you're spending more time at home because of COVID — that's free, so you don't have to worry about adding a burden on your wallet."

Along with libraries of classic TV, companies have made their AVOD offerings even more attractive by adopting channel guide interfaces that mimic traditional TV, and by adding news and sports content. For example, the livestreamed NBC News Now channel is available via Peacock, while Pluto TV recently launched a channel for curated MLB content.

"The bread-and-butter for live TV has always been sports and news — that's what's continued to keep people with those live TV services — and now AVODs are starting to get in that," Fondulas said.

As it becomes more attractive to consumers and a larger part of the marketing mix, AVOD represents the latest swing in the content proposition pendulum from premium ad-free services back to ad-viewing in exchange for free content.

"The emergence of the empowered consumer to manage and personalize the dynamic array of video is really cool, but I think there will still be in large part a mix of AVOD, however that, plays out exactly," said Extreme Reach's McLaughlin.

When a consumer has such a personalized stack of content, they're likely more in tune with the content and surrounding ads — engagement that is great news for marketers. But to capitalize on that engagement, marketers must deliver great ads.

"The conversation about AVOD really needs to lead to a passion for storytelling and a passion for achieving the promise of those more personalized and engaging encounters with great stories and what drove the golden era of TV advertising from the beginning," McLaughlin said.