The latest Advertising Association/WARC expenditure report revealed that the UK TV ad market shrank by nearly 13% year on year between April and June 2022 – 2023. The decline in traditional broadcast TV is a main contributor to this as viewers switch from traditional broadcast linear TV to streaming services, CTV online watching, or online video.
The decline in linear broadcast investment reflects the precipitous fall in viewing figures. Before Covid, in 2019 88% of viewers in the UK watched at least some broadcast TV weekly according to Ofcom. This dropped to 79% last year and is almost certainly south of this figure in 2023.
But AA/Warc figures show broadcast VOD isn’t filling the gap – the AA/Warc data show its growth at 5.6% between April last year and this year. However, over the first half of 2023 BVOD growth was almost double at 10.2%.
Can advertising funded VOD (AVOD) and CTV which also includes non-streaming service video such as YouTube ultimately fill the gap shrinking traditional TV revenues leave?
The truth is our concept of TV is being fundamentally rewritten and at pace. Consumers don’t draw a line between scheduled TV programmes and social video clips. Where does the line between VOD and TV watched on a connected TV or another device fall? Does advertising income from home-made social media count?
Let’s work on the basis for now that we’re talking about TV shows and movies from streaming services or more traditional TV sources that can be surrounded by commercials and sponsorships.
Since the launch of the first ad-funded VOD options by the big players such as Disney and Netflix, at Kepler we’ve predicted that AVOD will end up accounting for a sizeable slice of the streaming market and could ultimately replace SVOD as the bulk of the audience market in the long-term.
New data is emerging to support the view this is ultimately where we’re headed. Disney has said recently that almost 50% of new subscribers are opting for Disney+ its AVOD offering and it is now delivering a far more sophisticated range of audience targeting options to brands than at launch. Amazon Prime will follow suit in the new year and, with their auto opt-in to the ad supported tier, are likely to have a very scalable audience from launch.
Netflix is reported to have 15 million ad-funded subscribers worldwide of a total current subscriber base of 247 million, with 30% of new subscribers opting for the AVOD package. Its overall subscriber growth remains robust despite the cost-of-living crisis.
Digital TV Research, analysis estimates advertising-funded video-on-demand (AVOD) will reach $91bn worldwide by 2028, more than double the $41bn earned in 2022. Digital TV Research expects AVOD to grow nearly twice as much as subscription VOD (SVOD).
An interesting new study from LG AdSolutions suggested that 68% of UK consumers prefer to stream free content rather than pay for a subscription.
In the UK it remains to be seen what impact the new Freely service integrating BBC channels with ITV and Channels 4 and 5 will have on audiences when it arrives next year. Exactly how the commercial opportunities for brands will fit in what’s billed as replacement for linear with a mix of live TV and VOD streamed content, is as yet unclear.
How the balance between more expensive ad free VOD and AVOD evolves depends on a complex mix of economic conditions, pricing and perceived value of the content on offer and will no doubt vary market by market.
But as it scales and the audience targeting offering improves, AVOD will inevitably suck in more revenue. But from where? Today’s media landscape is one in transition, so this remains very much an open question.
Séamus Brennan is associate account director partnerships and strategy at Kepler EMEA.