This year is shaping up to be a great year for advertising-based video-on-demand services (AVoDs), with some experts predicting that ad-supported streaming services will soon dominate the industry. That's because, with so many new subscription-based video-on-demand services (SVoDs) entering the market, subscription fatigue is running high.

This development has helped AVoD providers who give free content in exchange for ad views reach a critical mass of users. The recent slew of AVoD acquisitions by media giants like Fox and Comcast shows they understand ad-supported streaming is a smart investment. At the same time, online video ad spend grew 20% in 2019 and is expected to accelerate.

Ad-supported video businesses are now, for the first time, in a perfect position to overtake their subscription-based counterparts. While the OTT industry is going to face some serious challenges in the next couple of years, AVoDs should be able to overcome those challenges and come out ahead in the streaming wars.

Yet there's one problem many AVoDs have ignored that needs to be addressed – a problem that is costing the industry millions of dollars in lost ad revenue. And that's the fact that the mobile streaming experience remains flawed and frustrating for viewers.

Stream abandonment is costing AVoDs millions, and mobile is to blame.
Ad-supported video is a cash cow, with some estimating $1 billion in growth this year, on top of the $3 billion earned in 2019. Yet stream abandonment remains high among all VoD providers, with 18% of viewers leaving a stream before their video even starts. In other words, almost one-fifth of users who have the full intent to watch a video — and press play — leave before they watch. This is often due to frustration with playback delays caused by connectivity issues. For ad-supported video providers, this translates directly into lost revenue.

Stream abandonment is especially problematic on mobile. Indeed, smartphones have the lowest average session time among devices (5.3 minutes compared to 21.3 minutes on CTVs and 12.4 minutes on PCs) and the highest buffer ratio (1.2%, compared to the average VoD buffer ratio of 0.49%).

With viewers often watching mobile video on the go, in and out of connectivity, playback delays are even more common on phones and tablets. Plus, mobile viewers are less patient with buffering, as they have plenty of other ways to be entertained on their phones if their connection can't support streaming.

AVoDs solve subscription fatigue – but have bigger problems with streaming issues.
There are hundreds of streaming services on the market, but the average US home only pays for 2.28 subscriptions to video services. This means SVoDs are competing for a very limited number of spots in a viewer's entertainment budget – and with the economic fallout of the coronavirus pandemic making purse strings tighter, the average household may subscribe to even fewer services now.

Ad-supported businesses are immune to this. Whether they give away content for free in exchange for ad viewership, or take the Hulu route and offer reduced subscription costs for ads, the AVoD model gives viewers a cost-effective alternative to costly streaming services. Data shows that consumers don't want to pay more than $30 per month total for streaming services. Yet at the same time, 78% of digital video viewers say they don't mind watching ads if it means the content is free. This puts AVoDs at a huge advantage, especially in uncertain economic times.

Yet when it comes to mobile, AVoDs have a disadvantage. Of course, mobile streaming problems like buffering affect subscription-based content, too. But when ads are thrown into the mix the added complexity can create more issues and more opportunities for frustration.

In turn, this creates more chances for frustrated users to abandon the content they are watching, before the AVoD can get the ad dollars or engagement. Plus, when AVoD viewers abandon a stream because an ad is struggling to load, the provider not only loses out on the monetization – they also have to pay the ad serving cost. This means a poor user experience leads to a direct loss of revenue.

Conclusion
Even as the economy starts to tentatively open up in certain areas, people will be going out less for the indefinite future. When theaters open back up, consumers will not likely return to see movies at the same rate given safety issues. The TV, tablet and mobile phone will continue to be the entertainment centers of our lives, which means there's a huge growth opportunity for the entire OTT industry despite the production setbacks.

The OTT industry is losing millions of dollars in revenue because of poor experiences caused by connectivity issues, and AVoDs are particularly vulnerable to this. Solving stream abandonment is crucial to taking full advantage of the opportunity on the table, and the providers that innovate around stream abandonment are the ones who will come out on top.

Want to learn more information about the latest streaming video trends? Then sign up for Light Reading's free digital symposium about distributing and processing next-gen streaming video on Thursday, October 15. Please click here to find out more and register for the event.

— Dan Taitz, President and COO, Penthera