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AVOD vs. MVPD OTT — An Advertiser’s Guide For The Future

AVOD versus MVPD OTT – There is a lot of development and transformation going on right now in the world of advertising. As OTT (over the top) continues to gain traction, we find ourselves at the incredible turning point between the decline of traditional linear TV and full-blown digital streaming adoption. What an exciting time to be a marketer!

When we examine this shift from the old to the new, what we’re really looking at is the abandonment of the classic MVPD, which stands for multichannel video programming distributor. This is just a fancy way of referencing services that offer multiple TV stations — think DirecTV, Comcast, Cox, etc. MVPD relies on some sort of physical connection, whether it is a cable, fiber, satellite, or something else. This is important to note, especially when distinguishing from virtual MVPDs. 

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When OTT first started picking up speed, virtual MVPDs (vMVPD) were introduced as a sort of saving grace for linear TV and cable . These are services that offer various live TV stations through an internet connection and generally have fewer channels than MVPDs (popular examples include Sling TV, Fubo, AT&T Now, and Hulu Live). 

Its inception approximately two years ago was rooted in the assumption that viewers valued live TV and simply wanted a cheaper alternative to traditional cable bundles (not to mention that many consumers hate their cable companies – most are rated at the bottom of the BBB… yikes!). New data indicates that this theory is not holding up to be very accurate. Why? Keep reading.

Within the past year, the COVID-19 global pandemic has completely turned the world on its head. In the realm of advertising, marketers found themselves needing to abruptly pivot as people’s behavior shifted across the nation in response to the ‘new normal.’ The delicate nature of the pandemic and the economic uncertainty that it introduced has made consumers question the rising cost of vMPVD and increased app fragmentation requiring multiple subscriptions, logins, etc. They’ve had to decide whether it is worth keeping. 

What Does the Future Look Like for vMVPD Services? 

As a whole, consumers are reexamining the media services they are signed up for and keeping a closer eye on their budget. For a lot of people, one of the first services to get the axe appears to be vMVPD services. The quarter following the onset of COVID-19 showed losses of more than 300,000 subscribers in the vMVPD category. As advertisers, the question now is whether it makes sense to allocate budget for vMVPD ad spots. 

Benefits of advertising on vMVPD Services

Should you advertise on vMVPD services? Are there any advantages? The short answer is…yes. There are pros and cons to advertising on any service. It is a matter of whether the benefits outweigh the cons. And of course, whether the outcome is worth the ad spend or whether your ad dollars are better spent elsewhere. Let’s discuss what advantages the live TV experience offers:

  • Higher Engagement Rate 

As a whole, the live television experience consistently returns higher engagement rates. This is because audiences are actively paying attention. After all, unlike pre-produced content, live television can’t very well be paused while it is airing. 

During short commercial breaks, viewers are less likely to leave for fear of missing when the program returns. As a result, there is a much higher chance of making an impression and increasing brand recognition after the video is watched to completion.

  • Audience Targeting 

Unlike traditional, linear TV, vMVPDs have the ability to target audiences with a higher level of sophistication. You can leverage data in a manner that is lightyears ahead of linear TV, which is limited to the basic demographics of age, gender, location. 

vMVPDs are able to draw upon more specific data points, ranging from behavior, time of day, real-time location, and more. This makes each campaign easier to optimize, with better allocation of ad budget and higher conversions overall.

Problems With vMVPD Services

Outside of higher engagement rate and refined audience targeting, there are also several problems with vMVPD services that we’ve previously inferred to. The biggest one is the instability in the sector as a whole. When the pandemic set in, many channels focused heavily on the doom and gloom, the economic downturn, and the depressing turn of events for 2020. 

The pandemic caused the supply chain for new, original content to seize up, leaving news as the only new/live content to watch, which created a level of avoidance with live programming, as consumers sought to get away from the negativity. This decrease in the audience base hasn’t changed and the slowing growth rate is also holding steady. Further, what happens when the free or discounted memberships that were offered to initially grab market share expire? How many consumers will stick around?  None  of these factors are  good indicators for the future of vMVPD services, which begets the question of what happens to these platforms long-term as their parent companies are unlikely to be willing to continue to subsidize the losses? According to MediaPost, AT&T is already considering selling AT&T Now. Additionally, with free alternative programming available, the limited channel scope that comes with vMVPD becomes a less attractive option. 

What Does the Trajectory of AVOD Services Look Like?

While the pandemic seems to have hurt the already declining sector of vMVPD, it actually served as a catalyst for the growth of AVOD services. AVOD (advertising-based video on demand) – also referred to as FAST (free ad-supported TV) – references platforms that provide content for free, or at drastically reduced rates, and in exchange, viewers are to willing accept ad interruptions.  

AVOD Growth in 2020

Ad revenues for AVOD are expected to grow by 25% in 2020. This makes sense when we look at the high impact of the pandemic. Consumers are spending more time inside their homes than ever before. They are cutting down on non-essential spending.  They are also watching more hours of television than previously. It is safe to say that under the new normal, we can expect this heavy media consumption to hold steady for the foreseeable future. 

The overexposure to television has created a type of subscription fatigue as individuals question whether any subscription is worth it, from vMVPDs to other premium services like Netflix, Disney+, HBOMax, and more. Furthermore, the uncertainty that prompted consumers to cancel vMVPD services is the same reason why AVOD services are more appealing. 

The Bottom Line

When major networks launched their respective vMVPDs, it was based on the assumption that live TV is highly valued. Unlike other sectors of OTT, vMVPDs have not taken off or captured significant market share. As the pandemic continues to develop, new original content is still facing production challenges and consumers grow tired of current events. The desire to tune out the news further paints vMVPDs as unnecessary. 

On the other hand, the mass adoption of AVOD platforms is one of the most significant shifts of the year for the OTT world. While it is still considered newer, the projected growth in coming years shows incredible promise. This creates a huge opportunity for advertisers and marketers who choose to focus on this sector before the space becomes saturated.

Having been at the edge of innovation for all that is OTT, the Strategus team has become experts at spotting trends before they hit the masses. With changes and new developments happening frequently, it can be overwhelming to sort out the noise. If you have a question about how to strategize for your next OTT campaign and how to capitalize on AVOD advertising, don’t hesitate to reach out! Our team will be happy to chat and offer insights.

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