The coming influx of Connected TV ad inventory
- Ad-supported Video On Demand (AVOD) is growing users. Tubi and Pluto have shown that consumers are craving a free or less expensive, ad-supported option. Tubi recently announced 25 Million Monthly Active Users (MAUs) as of June 2019. Pluto appears to be just behind Tubi, reporting 20 Million MAUs in November 2019. As their users grow, more impressions and reach will be available for buyers. In addition, as these AVOD options become more compelling to users, they’ll increase their engagement time which will also increase impression volume and frequency available to advertisers. Furthermore, many of the AVOD platforms are backed by powerful linear TV companies with a lot at stake in making their AVOD platforms successful. Companies like Pluto and Tubi have ready access to the parent company’s content and investment dollars. There are a lot of tailwinds behind these AVOD companies.
- Ad loads will increase. As ads become better aligned to the Connected TV experience and ultimately less intrusive to users, ad-supported options will be able to increase the ad load (number of ads shown in a piece of content). Today, the ad experience is still pretty clunky. This is partially due to antiquated technology and legitimate operational challenges (i.e., competitive separation and limiting repetition). As the experience becomes less clunky and more streamlined, publishers will be able to create a better user experience. With a better user experience comes the possibility of increasing ad loads. Today, Hulu’s ad load is 90 seconds per 30 minute show. This is compared to 8 minutes per 30 minutes on a network or cable show. Hulu (and others) has significant room to increase their ad load while still maintaining supremacy over network and cable television.
- More ad-supported options. Peacock has already announced an ad-supported option and as you see more of these services launch, they’ll launch with ad-supported options (like RedBox just announced). There are really a small handful of publishers in the market today. Barriers to entry are not super significant, especially with the investment in the space (and especially if you can acquire content cheaply). Disney Plus and Netflix are the outliers in not offering an ad-supported option today (see below), as more streaming providers launch, you’ll see the bulk of them launch with an ad-supported option.
- Bonus Point: Disney Plus and Netflix will ultimately provide ad-supported options. Netflix has made it clear that they are not considering an ad-supported option in the near future (next 12-24 months). They rightly claim they’d have to build an entire ad tech company to provide high-quality, targeted, and compelling ads for their consumers. But, this won’t be the case for long. Ad Tech companies are moving aggressively to support CTV and they’ll ultimately enable Netflix to offer a compelling ad product to marketers. I believe they’ll maintain this positioning as long as they can continue to show user growth. At some point, user growth will taper off (it already has in the US; growth came from international over the past year). Once, the user growth slows, I suspect they will offer an ad-supported option (maintaining the paid/ad-free option), leveraging the current (or newly developed) ad tech in the market. Disney will probably make the transition before Netflix as they already have much of the infrastructure in place to offer ad solutions. When either or both do, there will be a flood of ad inventory into the market. All it takes is under half of Netlix’s US Users (60 Million) to become ad-supported, and that would generate the equivalent of another Tubi with the engagement of Hulu.
By 2027, brands will spend, at least, $10B* to make advertising on CTV easy.
* Brands spend 10-20% of their spend on agency fees or on a tech stack to enable them to easily capitalize on CTV media.
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