January 25, 2019
The audiences for linear TV continue to shrink, but many major media players are eschewing subscription-based revenue for advertising-based video on demand (AVOD) services. That’s because Netflix and other super-aggregators as well as niche players are dominating — and saturating — the SVOD market. According to a Lab42 October 2018 survey, the average U.S. consumer subscribes to two to three streaming services, one of which is “almost always” Netflix. NBCUniversal, Viacom and Hulu are all making plays in the AVOD sector.
Variety reports that NBCUniversal “plans to launch a streaming service with an ad-supported and ad-free tier in 2020.” NBCUniversal chief executive Steve Burke, during Comcast’s Q4 2018 earnings call, stated that the company “should start and try to gain as much scale as possible with an ad-supported free streaming service.”
On Tuesday, Viacom announced its intent to purchase AVOD service Pluto TV for $340 million. Pluto TV brings 12 million monthly active users and “additional commercial inventory.” Hulu also “lowered the bar for entry to the ad-supported portion of its own subscription plans to $6,” while raising prices to its pay-TV bundle.
Lab42 founder Jonathan Pirc reported that, “Netflix has the highest retention rate when compared to its rivals, so this means companies late to the streaming game are more directly competing against other services like Hulu and HBO Now.” Competition in the SVOD space is why, “NBCU’s research … found most consumers indicated they’d rather endure 3-5 minutes of ads for free access to its service than pay $10 per month.”
The AVOD players also “have the opportunity to attract viewers that haven’t signed up for Netflix,” which announced its own price increases last week. Comcast and Viacom’s AVOD offerings may “appeal to existing Netflix subscribers looking to maximize their content options, too, particularly for the segment of the population open to paying for 3+ subscriptions.”
According to Hub Entertainment Research, 23 percent of current Netflix subscribers said they would “definitely” end their subscriptions should Netflix decide to run advertising. NBCUniversal estimates it can “generate nearly $5 per user per month with its 3-to-5 minute per hour ad load.” That means that, with the 52 million people Comcast and Sky reach, if 10 percent become regular users of the new NBCU service, the company could earn ad revenues of “nearly $26 million per month.”