After a stellar quarter that ended on Jan. 1, 2022, The Walt Disney Company (DIS) announced that it would launch ad-supported video on demand (AVOD) to reach its target of more than 230 million subscribers by the end of fiscal 2024. As of Dec. 31, 2021, the service had 130 million subscribers.
The new AVOD service is set to go live at the end of 2022 and is expected to carry a cheaper price tag than the current version. The move will benefit subscribers, who will pay less; content providers, which will improve their reach; and companies, which can build their brand among AVOD subscribers.
- Disney plans to launch ad-supported video on demand (AVOD) in its direct-to-consumer segment.
- The launch is expected to help the company reach its target subscription base of more than 230 million by 2024.
- The trend toward AVOD adoption indicates a market where price wars are becoming fiercer, even as companies try to expand their reach through ad-supported free viewing.
- AVOD moves away from linear TV and subscription video on demand (SVOD) by increasing access to content while monetizing it without a high cost to the subscriber.
The AVOD Market
In June 2021, Warner Brothers launched an ad-supported streaming service with the cheaper HBO Max. With a discount of 33%, the new HBO Max was priced at $9.99 for a monthly subscription and featured four minutes of ads per hour. The company expects its AVOD service to generate the same margins as a $15-per-month package with no ads.
Other AVOD services include Hulu with ads, ViacomCBS's Paramount Plus with ads, DiscoveryPlus with ads, and NBCUniversal's Peacock Premium with ads. All four services are cheaper than their ad-free video on demand (VOD) versions.
Fight for Subscribers and Price Wars
As streaming services struggle to reduce churn among their subscribers, all providers seek to lower the price while upping the content. Disney's direct-to-consumer services Disney+, ESPN+, and Hulu have been caught in this fray.
AVOD is expected to grow in demand, with AVOD ad inventory at Disney+, as well as Hulu, Netflix, Inc. (NFLX), and Amazon.com, Inc.'s (AMZN) Prime Video reaching $300 million every month in 2021. AVOD expenditure is expected to reach triple-digit growth over the next five years to $66 billion.
Trend Toward Free Viewing
AVOD offers subscribers access to free and unlimited viewing that is supported by customized ads. While this reduces or eliminates one revenue stream (subscription fees), it opens up another (ad revenues) while potentially expanding the user base. AVOD may also reduce subscriber churn as streaming services focus on content rather than on price. According to Park Associates, the average churn rate in U.S. households is 44%, and the most common reason for the churn is the lack of new content.
As over-the-top (OTT) streaming over the internet directly to customers matures, the trend seems to be toward AVOD adoption. According to TVision, the time spent on AVOD streamed content increased from 9% in the first quarter of 2021 to 38% in the third quarter of 2021. Subscription video on demand (SVOD) decreased by 8.6% to 32% during the same period.