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Six Questions: Ad-Supported VOD

27 Apr, 2015 By: Erik Gruenwedel

Although first out of the gate, ad-supported streaming video plays a runner-up role to subscription VOD, the latter spearheaded by industry phenomenon Netflix. Lost in the clamor of SVOD is the fact that ad-supported streaming entered the market first in 2007 with launches of Hulu, Crackle.com and Break Media — a year ahead of Netflix, which at the time was primarily a by-mail disc rental service.

Fast-forward eight years and Hulu, which is co-owned by The Walt Disney Co., 21st Century Fox and NBC Universal, has transitioned resources toward Hulu Plus, a SVOD service (with ads) and more than 7 million subscribers.

With the proliferation of subscriber-based over-the-top video services such as HBO Now, PlayStation Vue and Sling TV, the market for free, ad-supported VOD would appear compelling.

Crackle, which is owned by Sony Pictures Entertainment, just launched a new playback feature dubbed “Always On,” which begins streaming scheduled content much like linear TV. Users can also select their own programming.

Crackle is one of the few AVOD services offering original content, including Jerry Seinfeld series, “Comedians in Cars Getting Coffee,” “Sports Jeopardy!,” and spy drama The Throwaways with Kevin Dillon and James Caan.

New AVOD player Shout! Factory TV joins Popcornflix, the latter launched by Screen Media Ventures in 2011. Shout! Factory, which is known for distributing eclectic programing and award-winning box sets, is looking to replicate the strategy in streaming.

Popcornflix, which began offering ‘B’-movies with ‘A’-list actors, has broadened its appeal to include horror and children’s content. The company has launched its app in 36 countries, including Latin America, the Middle East, Russia and China, making it one of the most widely available ad-supported streaming services.

In this 6Q segment, Home Media Magazine asked AVOD executives about the state of the market as it competes with SVOD for consumers.

• With the appeal of time-shifted programing and skipping TV ads, how do you market ad-supported streaming to consumers? 

Gene Pao, VP of digital media, Shout! Factory TV: We offer a wide range of content to the consumer for free. Other “free” services such as Hulu, YouTube, cable VOD all have ads. The most widely used platform that provides ad-skipping is the DVR and most (if not all) MVPDs require a subscription service to access that feature. In my case, I have Verizon, and it’s $19.95 per month.

Because our content is comprised of classic and cult TV and movies, these are titles that are not new to the viewer. What we do is provide new and unique viewing experiences such as live events, original extras, and social interaction. We then reach out to and engage existing fan bases to participate, and along the way, pick up new audiences for our content. We have had considerable success with stunts such as “MST3K Turkey Day Marathon,” “Powermorphicon Live,” and “Summer of Fear.” This is a really exciting component of our overall programming strategy and we have a number of other stunts in the works.

David Fannon, EVP at Popcornflix: There is one clear advantage to AVOD: Users don’t have to deal with downloads, subscriptions, or any other hassles. Being able to market from this angle in an eco-system with a growing number of subscription services is still a great opportunity.

• Are content holders less interested licensing to AVOD than SVOD? CBS CEO Les Moonves a few years ago said he preferred offering content to subscription streaming. Has that mindset changed among content holders?

It depends upon the content and the deal. Many licensors (including Shout! Factory) are less inclined to do revenue-share deals without advances or minimum guarantees. The criteria then becomes who is able to offer the larger advance. In our analysis, revenue to a content holder from SVOD services is not much better than revenue from AVOD.

It’s also about the overall value proposition to the consumer. There is some content that consumers are willing to pay for, while for others, there is not. The landscape continues to evolve and we are maintaining a position to be flexible within the market. There are also content holders who are withholding their licensing because they want to build their own services. While there are many technical platforms giving them the ability to offer both AVOD and SVOD services, that’s only one component of building a successful streaming service. They need to also know how to program and market the offering to build an audience and/or subscribers, and understand how to sell ads or manage subscribers, or both.

Fannon: Yes, in my experience, the mindset has changed quite a bit. Sure, SVOD audiences are still drawing the lion share of licensors’ attention, but a lot of content holders are actually highly interested in licensing for AVOD. Particularly for catalog, AVOD Licenses are very attractive.  Licensor’s are able to monetize content that otherwise would sit on a shelf collecting dust. An AVOD license allows licensor’s to fully take advantage of the long tail monetization of their content.

• How does ad-VOD compete with SVOD services offering original content?

We believe that people are willing to pay for an SVOD service if they are passionate fan of that type of content. Content such as live sports (e.g., MLB and NFL) and anime (Crunchyroll) fit into that category. Most original content, however, does not fall into that category (e.g., the failure of the YouTube subscription service) so the AVOD model works better. In general, consumers must be passionate about the product to open up their wallets. Casual fans are willing to wait or tolerate ads to view the content. A content holder needs to have a realistic view of their content to be successful. I am very interested to see how Vessel performs.

Fannon: At this point it doesn’t. AVOD’s scale is not there yet, but it will be.  Popcornflix has one original comedy show.

• What content rates higher for AVOD among users: movies or TV shows? 

Pao: It varies. TV generates more viewing hours simply because of the sheer volume. However, some movies generate high viewership as well.  In the end, quality programs offered in the right context generate the most views.

Fannon: For us, movies are still rating higher, but television has grown at a very fast pace over the past couple of years, and audiences are increasingly interested in the most current TV content as well. In the last quarter of 2014, 94% of video views have been of a show’s most recent season; the year before it was 86%.

What’s interesting is that the distinctions have blurred more than ever. The biggest difference in user behavior now seems to be between long-form and short-form, rather than movies and television. The most successful TV series are long-form, and long-form continues to grow at a rapid pace. For us, long-form generates more than two-thirds of our views and the number is growing.

• How important is Ultra HD to AVOD or streaming in general?
Ultra-HD (a.k.a. 4K) is a great marketing tool to sell new viewing devices (namely big screen TV sets) and streaming services. 4K will likely accelerate cord-cutting since the MVPD infrastructure needs to be overhauled to deliver true 4K (e.g., broadcasting ops, cable head ends, set top boxes, etc.). With streaming, all you need is for the content to be produced in 4K and for a device to display content in 4K. The transition to 4K will be less painful than the transition from SD to HD 10 years ago.

However, 4K address a specific viewing audience — the living room experience on a big screen TV. With increased viewing on tablets and smart phones, 4K is meaningless on those devices.

Fannon: We have seen that a great user experience is more important than ever, and I think Ultra HD will be a must in the future, for streaming in general, and also for AVOD. At the moment I don’t think it’s indispensable.

• What is demo of an AVOD user? Is it the male millennial or other?

Pao: The data we’ve analyzed suggest that the demo of an AVOD user is younger (millennial and Gen-Y) and is evenly split between males and females.  Our content tends to skew more male. We think that the demo will even out as more content that appeals to older generations (e.g., traditional sports, news, classics) moves online.

Fannon: The AVOD demographic is actually much more diverse than that. Millennials certainly are the largest demographic group, but the overall split between women and men is relatively even — of course, it differs on the different devices. And of course, what matters isn’t only sheer user numbers, but engagement rates. Women above the millennial bracket are for example a very engaged and active audience.

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