Mic Drop #3: A Prediction from February Proven Right in October
Legacy AVODs have matured unusually fast, but there is a big catch
This week, I am going back to a Member Mailing I wrote in February about legacy media’s acquisitions of AVOD services, and I asked the question: “Why are legacy media companies making these bets?” I concluded
In the case of Comcast, Roku, and Amazon, they are bullish because they see AVOD and streaming in terms of real estate: own the hardware, own the software, and deliver a variety of services which keep users engaged. In the case of Fox and ViacomCBS, the rationale is simpler: opportunities for additional digital TV inventory and higher ARPU. Those make economic sense, but Roku's and Amazon's recent moves in the space suggest those opportunities face headwinds.
In this light we can see why Comcast, Roku, and Amazon are betting heavily on AVOD, and why ViacomCBS is both selling the upside and the "capital efficiency" of its AVOD play, because the that upside is limited for both its bet on PlutoTV and Fox's bet on Tubi.
Comcast, Roku, and Amazon will find more wins in AVOD because they own the hardware, own the software, and deliver a variety of services which keep users engaged.
Fox and ViacomCBS face headwinds and limited upside in creating additional digital TV opportunity and ARPU
(1) Comcast, Roku, and Amazon
All three companies have been finding wins in AVOD lately:
Comcast Monthly Active Users (MAUs) for Peacock reached 15MM subscribers across Comcast and Cox, and recent acquisition Xumo has seen its user base grow by 2.5X to 24MM MAUs;
Roku will distribute the Roku Channel on 40MM+ Amazon Fire devices; and
Amazon will release IMDb TV internationally.
All three can find scale in AVOD easily because they own the hardware, own the software, and deliver a variety of services which keep users engaged
Comcast’s wins with Peacock on X1 are particularly notable given that, from my experience, the service is unusable elsewhere (see my Tweets on this). Its wins with Xumo offer it an additional audience base to monetize at scale, in addition to Peacock.
But, both Amazon and Roku have one distinct advantage over Comcast: international. IMDb TV is U.S.-only but Amazon Prime Video is in available in over 200 countries and territories. Its international roll-out later this year will help it begin to reach more of 250MM Unique Visitors to IMDb.com worldwide. Some percentage of Amazon Fire devices are international (I have heard up to 20 to 30%), so Roku Channel on Fire TV will help it to reach an addition 40MM+ users, domestically and internationally.
Comcast is currently confirming it has interest in putting its X1 software on third-party smart TVs.
(2) ViacomCBS and Fox
Both are finding impressive wins in AVOD, too:
ViacomCBS’s Pluto TV MAUs total 26.5MM in August, up 61% YoY, and are likely to reach 30MM this quarter.
Fox’s Tubi had 33MM MAUs in August, up 65% YoY.
But where are the headwinds and why is there limited upside?
It goes back to something I wrote about Roku in The Evolving Definition of "Gatekeeper" in OTT (to download, purchase or Membership required) that also applies to Amazon Fire TV:
[Roku] is a very specific type of gatekeeper: it controls access to OTT devices in the living room, whether it is a smart TV (one in three sold have Roku OS) or a stick; and, it aggregates demographic and viewing data on the viewing behaviors of those audiences in their living rooms. It charges access to SVOD apps (percentage of subscription revenue) and AVOD apps (percentage of ads sold) to reach those audiences and to leverage that data.
But, I also noted:
…an [AVOD] app has more data on its own users than Roku because it is available across multiple ecosystems (e.g., Apple TV, Android TV, Amazon Fire) and is aggregating data about its users across those ecosystems (though, as The Entertainment Strategy Guy and I discussed on Twitter, basic correlations Roku can make can eat into that perceived data advantage).
In turn this means an AVOD like Pluto TV or Peacock could end up with better data for advertisers than Roku.
So, it should be that an app like Xumo or Pluto TV has a built-in advantage over Roku Channel because it can attain more scale across platforms.
The flip side of that, of course, is that The Roku Channel on Amazon Fire devices gives it data on 40MM+ Amazon Fire device owners, which gives it ~2.67x the scale that legacy media competitors have. And IMDb TV will start trying to capture some percentage of an existing audience of 250MM Unique Visitors to the IMDb.com site.
Comcast is the only legacy media owner offering AVOD with similar advantages, and is nowhere figuring out how it will scale X1 internationally. Nor will it be able to reach the same amount of scale.
Mic Drop #3
We should be celebrating the wins ViacomCBS, Comcast, and Fox have found in AVOD. They are exceptional and unusual after two decades littered with ad-supported digital media failures.
The problem is, as I noted on Twitter:
Todd Spangler @xpanglerComcast’s @XumoTV Touts Explosive Growth, Topping 24 Million Monthly Users for Free Streaming Service (EXCLUSIVE) https://t.co/SeSPmTwqVm via @variety
The question is how we think about the road ahead for AVOD services, and the answer is, Roku and Amazon effectively own that road as gatekeepers.
With Roku Channel on Amazon Fire devices and other devices, Roku Channel will have more scale than any legacy media company. Moreover, it will have more sophisticated ad targeting technology. Comcast owns some of it in the U.S. (26MM homes alone, 29MM with Cox), and has a sophisticated ad targeting platform in NBCU One. But Roku is far ahead of everyone, and growing faster.
I also failed to mention Samsung TV+, Samsung’s streaming service. Samsung is the the leading is the leading brand for 1B+ OTT streaming devices with a share of 14% of devices in use worldwide. It also is a gatekeeper on that road ahead for AVOD services.
The Roku Channel’s growth, Amazon’s international expansion of IMDb TV, and the international scale of Samsung TV+ are headwinds which create enormous AVOD competitors, headwinds for growth, and limited upside for legacy media ad-supported platforms.