While subscription video on-demand (SVOD) services found strong early success on over-the-top (OTT) platforms, ad-supported (AVOD) services are now starting to catch up. This is well demonstrated by how OTT device maker and platform Roku has seen advertising become an increasingly important revenue driver – partly through content promotion, but also through ad delivery on third-party AVOD services, as well as on its own Roku Channel. Here Tariq Mahmoud, head of international sales and strategy at Roku, discusses the role AVOD services play in the ‘streaming wars’, and how AVOD services can make advertising work for the customer on OTT.
Mahmoud will be on stage at New Video Frontiers in London next week, discussing ‘OTT’s Great Disruption: What’s the Future for AVOD?’
Roku recently announced its smart TV licensing programme is expanding into Europe – are there any unique challenges here for that strategy?
We’ve had a lot of success with our smart TV licensing programme in the US and Canada – in the US last quarter one in three smart TVs sold were Roku TVs. So we think the smart TV licensing strategy is a good one for us to expand our presence in Europe – we’ve been in Europe for many years through players and devices, but we think this will help us expand really quickly there.
Every market has different tech requirements from a hardware and products point of view, and obviously every market has different challenges from a distribution, infrastructure and retail point of view. You have to make sure you’re partnering with not only the hardware manufacturers, but also the local retailers in order to distribute it. And you have to make sure you’re doing co-branded support. These challenges aren’t unique to any specific market, but every market does have unique challenges.
How do OTT platforms differentiate from one another, both in terms of attracting users and attracting publishers?
From a market point of view, we’re talking about around one billion potential streamers across the globe, and we’ve got 30.5 million active accounts at the moment. So when you think about our scale currently, I think we can say we’ve taken a healthy share of the market already.
I think that’s down to a few things. Firstly, I think we offer a really easy-to-use interface to our users. Simple is hard, and we’ve invested a lot of time and energy into developing an interface that allows users to focus on the experience – it’s easy not just for ageing grandparents, but also for young and tech savvy millennials.
Secondly, we’re agnostic with the content – we say we’re the Switzerland of content. We’re not trying to compete with channels that want to come onto our platform, so that helps us differentiate from our competitors and attract content owners.
And then the third thing is price, we’re efficient on our hardware costs and pass on those savings to our customers, and that helps us of course to attract more users onto the platform.
There’s a lot of talk about the ‘streaming wars’ among the SVOD services, and their battles on content and price points. What role do AVOD services play in this war – do they compete on the content front as well, or are they complimentary?
We don’t see a competition between SVOD and AVOD, we see opportunities for growth for both. And we’ve found that AVOD channels are the ones growing fastest on our platform. So customers want free content with more relevant and targeted ad experiences, as well as SVOD experiences. Our own Roku Channel, which is free and ad supported, has grown quickly, and is a top five channel on the platform by reach.
Obviously it’s hard to say for sure what role AVOD services will play in the long term. Overall, if you think about the consumer experience, and the value they’ll get from the new services coming on board, they will ultimately get to a point of saturation. So the Roku Channel is an opportunity for us to provide an alternative to paying for yet another SVOD service. And when we’ve done surveys on the branded integration side, 87 percent say free content is important to them, 51 percent say getting something free from a brand makes them like the brand a little more. So customers do perceive that value exchange.
For us at Roku, we win when every channel wins, so it’s healthy for us to have SVOD services to continue to grow. And that also creates a larger opportunity for alternative sources of content, AVOD services like The Roku Channel. Does that in the future translate into AVOD services having their own original content? I think it’s a bit too early to say at this point.
How do you make advertising on AVOD services acceptable those who might have grown accustomed to ad-free viewing on SVOD services?
First of all, free is important to our consumers. We’ve found that 78 percent or so of Roku users who we surveyed actually wouldn’t pay anything to not see any ads.
But I think that number is so high because we’ve differentiated by accepting that not all AVOD experiences are the same. So the Roku Channel specifically has half the ad load of traditional linear TV which provides for an overall better experience. On OTT you also the ability to develop interactive ads, which is different to what even millennials are used to. So that’s things like interactive video overlays which can give customised offers and unlock free content, things like that.
And ultimately, all these experiences help drive a better ad experience, which drives a better consumer experience. And that means for users it’s not a competition between choosing to have an AVOD service or an SVOD service, but they’re compliments rather than substitutes.
Roku said recently it’s investing in new ad formats, which formats are you most excited about?
Interactive ads are really exciting for us. In the US we’ve launched an interactivity solution through Innovid, and we’re always looking to expand these things internationally. Unique, more creative ad experiences are really helpful to users because it makes them less fatigued when it comes to watching certain types of ads.
And moving beyond 15-30 second ad spot to more sponsorship-based things, which would ultimately grab the customer before they go down an SVOD subscriptions service. So in other words, we provide to Roku consumer on the native banner ad, which is the first thing they see when they open up the Roku TV or device. That’s effectively a value exchange, the advertiser sponsor a piece of content or series of content, and we get really high engagement on.