As millions of people globally are forced to stay at home, TV consumption will grow sharply. It is widely assumed that the main beneficiaries will be streaming companies, given their current strength compared to traditional TV companies. However, these expectations fail to account for the fact that the subscription video on demand (SVOD) model means they are not well-positioned to benefit fully from increased consumption. This could give ad-based video on demand (AVOD) services an opportunity.
COVID-19 is expected to boost streaming revenues
Netflix might be licking its lips at the prospect of entire populations essentially sentenced to house arrest, unable to venture outside for entertainment. However, increased viewership will not automatically result in profit growth.
With uncertainty still surrounding compensation packages for those forced out of work, basic goods will likely take precedent over luxuries like TV subscriptions in a cash-strapped economy. Also, a huge surge in viewing hours will make no difference to an SVOD firm’s bottom line. This is because companies like Netflix charge a flat fee. In contrast, ad-based platforms earn money based on the number of ads consumed, so increased viewing hours equals increased sales.
Capacity has been hit
It is even more unlikely that Netflix will see significant subscriber growth in its most profitable regions, as they tend to be the most mature. There are already 61 million Netflix accounts in the US alone. Furthermore, in Europe, streamers have been forced to reduce picture quality as broadband providers try to deal with network overcapacity.
AVOD can benefit from the end of traditional TV
The pandemic has the potential to benefit traditional TV providers, which also make the bulk of their money from advertising. However, the lack of live sporting events will be a critical blow for these companies. It may be the catalyst that causes many people to cut the cord and move to streaming once and for all.
The crisis might shake up the whole TV industry, with emergent AVOD services best positioned to profit in the current climate. These companies are fairly new, giving them room to grow, and they will become more profitable the more people watch, thus allowing them to benefit from the months of binge-watching to come.
This could provide the perfect opportunity for existing AVOD services like Pluto TV and Xumo to challenge not only the SVOD platforms but also traditional TV platforms, where the ad-based experience makes them a more direct substitute. NBC’s upcoming Peacock service may be able to offset its losses from the postponement of the Olympics, for which it held viewing rights, with increased demand for both its SVOD and AVOD