Study: US AVOD viewers older, more economically challenged; but SVOD, AVOD can coexist

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Almost 20% of U.S. internet users watch AVOD (ad-supported video on-demand, a new report says, as those services continue to build their program catalogs, some with more available content than Netflix. But, the report found, users tend to be older and “more likely to be from low-income households.”

So, while the number of users is growing – up year-over-year from 13% in Q3 2019 – the demographics of the audience, notes Ampere Analysis, isn’t as desirable as more subscription-oriented consumers, which obviously tend to be younger with higher income.

Ampere notes that just as SVOD services saw explosive growth, AVOD services also appear poised to expand rapidly, with services like Fox’s Tubi and Comcast/NBCUniveral’s Peacock leading the pack.

Still, SVOD services have more than 4.5 times as many users as do AVOD services, with more than three-quarters (78%) of US households subscribing to at least one subscription video streaming service. More than one-half ( 55%) say they subscribe to more than one, up from 51% a year ago, according to Leichtman Research Group.

And, compared to the 17% of adults who stream an AVOD service at least once a month, more than 40% stream an SVOD service on a daily basis.

The problem with AVOD? The ads

We’ve spent much of the past decade conditioning two generations to be ad averse.

Millennials and Gen Edge viewers rank highest among consumers watching streaming video and they’ve both grown up with online video as a regular part of their diets… sans ads. Paying for TV and ad-supported video is an anathema to them.

2020 has been a difficult year for many ad-supported streamers, but less so than for pay-TV providers and broadcasters. Traditional TV has been hurt by the lack of live sports from the onset of the Covid-19 pandemic through events like the USGA Open and the NBA Finals. Both saw competition from other events – and a fairly widespread fan malaise – hurt ratings. In fact the six-game NBA Finals were off 51% from a year ago, drawing an average of 7.45 million viewers. Sunday Night Football was off 17% from a year ago.

And, while AVOD revenues may not be popping to the extent many expected, the deep pockets of the media and tech companies that own the biggest players should insulate the segment from the recession we’re wading through and the accompanying issues with ad spend.

But, can AVOD thrive on an audience with demographics as challenging as the one it now has?

As Ampere notes, active AVOD users tend to be older than SVOD subscribers, and are more likely to be from lower income households. To wit:

  • One-quarter of AVOD users are 45-54 versus 22% of SVOD viewers.
  • 19% 55-64 versus 14% of SVOD subscribers. Add in 65+ and about one-half of AVOD users are far older than the crucial 18-49 target demographic brands covet
  • Nearly one-half of US AVOD users have an annual household income of less than $30,000 per year, compared to a third of SVOD users

That will be a tough sell to brands, won’t it?

So, who wins?

The industry has for years followed the battle cry that “content is king.” But this faceoff between AVOD and SVOD is a pure example of how it’s really the consumer who’s in the driver’s seat.

SVOD services are continuing to see strong growth globally, and even in mature markets like the US as consumers walk away from the pay-TV industry and it’s ridiculous 200+ bundles of channels. Pay TV 2.0, the virtual MVPDs that were ballyhooed as potential backstops for the skidding pay-TV industry have been shunned by consumers as well… primarily because they’re really no different that their progenitors. Increasingly expensive as they increase the size of the bundles they’re rolling out, the promise of “skinny bundles” and lower prices have been forgotten like my vow to only have one helping at Thanksgiving dinner. It’s fruitless.

Consumers have shunned the offerings, with just over 6 million subscribers to publicly reporting services Hulu + Live TV, AT&T TV Now and Sling TV. And they lost about 400,000 subs in the first two quarters of the year… despite the increase in viewing across all screens streamers saw as the pandemic stay-at-home edicts became the norm.

Obviously, streaming, especially SVOD has morphed from the “supplement” many pundits back in 2012 thought it would be, to the primary form of entertainment for nearly half of all households in the US. In fact, I believe pay-TV household penetration will fall behind streaming household penetration in the next two, maybe three, years.

I could be wrong, but I doubt it. The deck is just stacked against traditional linear TV.

The bottom line

SVOD is projected to maintain its edge over AVOD for the next several years, despite there being more room for AVOD to grow.

But, increasingly, this isn’t an either/or equation. At least not for consumers who stream.

US consumers have been conditioned by the pay-TV industry to expect to pay upwards of $100 for content. All of it loaded with advertisements.

But services like Netflix, Amazon Prime, Showtime and HBO Max deliver more content for less – and are ad free.

That’s a hard equation to beat.

There is an argument that, as we forge through this recession, there will be consumers who drop SVOD in favor of AVOD. And that may be true. The bigger likelihood is that consumers looking to cut back on their entertainment spend will cut the cord from cable and move to an AVOD service. After all, we’ve seen six consecutive quarters of more than one million pay-TV subscriptions lost.

Or, a hybrid, with a service like Netflix as the base and several AVOD services to complement it.

Stay tuned and stay well.

Jim O’Neill is Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn