Week In Review: Ad Supported OTT Is Booming, So Is Churn On Subscription Apps

1. Ad Supported OTT Is Booming

We’ve been hearing anecdotally from people like Frank Sinton at Beachfront Media that  ad supported OTT is blowing up, getting both more viewers and more ad dollars.

And now Freewheel’s latest study confirms it. According to their latest Freewheel Video Monetization Report, ad views on OTT grew 35% between Q2 2017 and Q2 2018.

Why It Matters

Ad supported OTT comes in three distinct flavors:

vMVPDs offer linear programming and VOD across a broad range of networks. As we’ve mentioned here countless times, vMVPDs are no longer “skinny bundles” but rather, “mesomorph bundles” with over 80 channels that cost around $40-$50/month. (Look for both prices and bundle sizes to go up as these services mature.) Most their viewing is linear, though many offer sizable VOD libraries and almost all offer cloud DVRs. It’s estimated that over 6 million people now subscribe to vMVPDs, up from around 4 million earlier this year. We expect growth to continue to be rapid, as vMVPDs basically deliver on the TV Everywhere experience MVPDs promised years ago and so have proven to be very popular. They’re also quite inexpensive now, as the various players jockey to build audiences.

Ad-Supported Subscription Services like Hulu, CBS All Access and ESPN+. These services commonly offer an ad-free subscription level and an ad-supported level, and even though the price difference is generally only a few dollars, the ad supported models are allegedly far more popular. This area promises to grow as more networks come on board with their own OTT apps (e.g. Disney, Fox, NBC), but the crowded field makes it harder and harder for new entrants to succeed.

Free Ad-Supported Services like the Roku Channel, Pluto TV and TubiTV. This represents the fastest growing segment of the ad-supported OTT market, with the Roku Channel serving as lynchpin for Roku’s booming ad business (~$60MM) and PlutoTV launching its service in the UK this week. A recent article from our friend Sahil Patel at Digiday posited that much of the increase in viewership is due to the platforms' clever use of promotion, paying to be a native part of the interface on a number of smart TV brands and running frequent promotions of Roku and other devices.

One big driver for all ad-supported OTT platforms is that they maintain much lighter ad loads than traditional TV. To the point where viewers don’t seem to mind. They're also free from the glut of pharma advertising that plagues traditional TV, lackluster commercials that force viewers to think about death and dying for a full 60 seconds at a time. (There’s also the relevancy thing—if it’s not a disease I’m currently suffering from, I have no idea what the ad is even talking about, which makes for a piss poor consumer experience.)

There’s also the ability to target an audience with digital-like focus, a rapid improvement in the way audiences are both identified and verified, and improved infrastructure that reduces the amount of buffering and the amount of lag on live events like sports.

What You Need To Do About It

If you’re an advertiser, you should most definitely look into ad supported OTT, as it gives you the same brand-safe, high quality environment as traditional TV, at lower costs, with better targeting. Buying is still tricky though as there are few standardized systems and a lot of what we’ll politely call “sales puffery" but we think you'll find the end results are worth it.

If you’re a network app or a vMVPD, you might want to get to work simplifying and standardizing the ad buying process because all that complexity only serves to scare away potential advertisers.

If you’re a measurement company, you might want to get on the stick here too—the only thing more complicated than buying OTT ads right now may be figuring out how to actually measure them.

2. Churn Is Up On Subscription Apps

The fact that churn is sort of out of control on many OTT apps has been something of an open secret in the industry, but a recent study from the UK’s Juniper Research seems to prove it out. They found that HBO NOW had a churn rate of 19.2%, which is (kinda sorta) in line with what we’d been hearing (off the record) and the likely reason why AT&T is insisting that HBO start to pick up the pace.

Why It Matters

Subscription apps have a unique set of metrics. They need to get people to subscribe. And then they need to get them to not unsubscribe. That’s it.

That last part used to be easy back in the day when unsubscribing meant spending two hours on a Comcast phone chain only to be told that taking HBO out of your Super Platinum Premium package would actually make the price go up $5/month.

Now, all you need to do is to go iTunes or to the HBO website and hit “unsubscribe” and you’re done.

As more and more apps come on to the market, we think people are going to start doing that a whole lot more. They’ll subscribe to a platform to binge a specific series, and, if there’s not much else there, they’ll unsubscribe again until there is.

That brings up the whole vMVPD vs app argument, which is a topic for another day, but the more programming a subscription app has on offer, the more likely they are to retain customers.

That’s good news for Hulu, which has more library content than anyone else, and for Netflix, at least right now, before all those rights deals they have expire. (Jupiter’s study found that Netflix had no churn, that they actually retained subscribers at a rate of 6.2%. There were no stats for Hulu, at least not in the parts of the report Juniper made public.)

What You Need To Do About It

If you’re a network and you either have an app or want to launch one, you need to think about why people would want to subscribe to it all year long. It won’t do you any good to pretend they won’t binge watch shows and then quit or wait a month or two until all the episodes are online and do the same. You may decide that it doesn’t matter—that getting them for six months of the year is fine—but it is happening, and as the number of apps adds up, along with the number of original series, churn will continue to be an issue.

So there's that.