Deloitte: AVOD, Sports to Reshape Streaming Wars in ’23

The rising availability of AVOD tiers on SVOD services and streamers’ increasing spend on sports rights are among the key takeaways of Deloitte’s 2023 Technology, Media & Telecommunications (TMT) Predictions.

Price-conscious audiences are becoming more willing to watch ads on their streaming services, Deloitte observes. By the end of 2023, two-thirds of consumers in developed countries will use at least one AVOD platform a month, a 5 percent year-on-year increase. Moreover, Deloitte projects that by the end of next year, all major SVOD platforms in developed markets will have added an ad-supported tier. Looking ahead, Deloitte expects half of these platforms will have added a FAST service by the end of 2024. By 2030, most online video service subscriptions will be partially or wholly ad-funded.

Deloitte surveyed consumers in several markets and found a preference for lower-cost or free ad-supported options. In addition, many consumers are already regularly watching ad-supported services: 59 percent in the U.S., 58 percent in the U.K., 45 percent in Japan, 33 percent in Germany and 30 percent in Brazil. Deloitte also notes that the ad load for AVOD services from former SVOD providers is likely to be moderate, at about 4 minutes per hour, whereas broadcast TV ad minutes may double or triple in prime time.

Churn is a major concern for SVOD operators, sitting at 38 percent in Brazil, 37 percent in the U.S., 32 percent in Germany, 30 percent in the U.K. and 19 percent in Japan.

“AVOD’s resurgence is healthy for the wider television industry,” Deloitte says. “For SVOD providers, it unlocks an additional revenue stream and could reduce churn; for broadcasters, it raises the profile of a service they’ve been offering for years; for consumers, it enables continued, lower-cost access to their favorite content, albeit with the (minor) wrinkle of having to watch ads. While AVOD is not for every viewer, it’s likely to appeal to the majority, even in the wealthiest of markets. The transition to AVOD won’t, however, be a walk in the park. Consumers should be migrated gracefully. SVOD providers may need to restructure, add sales capabilities, reformat existing content, commission differently, measure ad impact and change culture.”

Variety in the ad range, along with a low volume of ads per hour, will be critical. “Content providers should replicate the ad sales organization and culture that traditional broadcasters have had for decades,” Deloitte says. “For some SVOD players with a traditional broadcaster heritage, this should be easier; for streamers that have never sold advertising, the learning curve will likely be steeper.”

Deloitte also observes that content may need to be edited differently. “Content that was commissioned for an ad-free service may require reediting to identify natural breaks to show ads. By contrast, library content that was originally edited to include ad breaks at regular intervals may not require any changes. Some licensed content may not permit the insertion of ads, so agreements may need to be revised. Content providers may also need to replicate the episodic release of content that broadcasters have perfected over the decades such that their tentpole releases are popular enough to drive the national conversation. For this to happen, new content should be teased and released at regular intervals, rather than a season at a time.”

Deloitte also identifies live sports as the next major battleground in the streaming wars. In 2023, streamers will spend over US$6 billion on exclusive major sports rights in the largest global markets. Notable recent deals include Amazon and the NFL in the U.S., Viacom18 and IPL in India, Viaplay for Premier League in several European markets, Apple’s global pact for MLS and DAZN’s investments in Serie A in Italy and LaLiga in Spain.

“It is important for both streaming providers and sports organizations to reflect on balancing their short- and long-term needs,” Deloitte advises. “Pure-play streaming providers and tech companies should consider if the high cost of live sports rights is worth it. Will it help attract and retain subscribers? Will it drive a halo effect for their other products and services? Traditional entertainment companies with both linear channels and streaming services should decide which service to prioritize when it comes to investment. And sports organizations should ask if their media deals are both meeting their current fans’ needs and cultivating the next generation of fans. Finding astute answers to critical questions like these will be key to what separates the champions from the runners-up.”