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In January, almost a year after Viacom CEO Bob Bakish told investors his company was preparing to launch a streaming service in late 2018, Viacom finally unveiled its OTT strategy—but it wasn’t what anyone had been expecting. Instead of creating its own subscription video on demand (SVOD) service—as rivals Disney, Comcast and AT&T are doing—the company had opted to buy Pluto TV, the free, ad-supported streaming video platform, for $340 million. The news left many Viacom investors and partners scratching their heads. “They’re like, ‘You bought what?’ Most of them didn’t even know what it was,” says Bakish. But many of them quickly warmed to the CEO’s new acquisition, which was finalized a month ago, after he and his other execs explained how Pluto is “integral” to Viacom’s distribution and advertising strategy. “This is much bigger than people realized when we did it,” says Bakish. “We think it’s a real game changer, not only for our company, but for the industry.”

That’s because it’s the biggest spotlight yet for AVOD (advertising video on demand), which has been quietly, yet rapidly, gaining momentum in the OTT space over the past year. The largest AVOD outlets—including Pluto TV, Xumo and Tubi—now attract as many as 12 million users each month, and boast libraries of more than 10,000 movie and TV episodes. And with cord-cutters and cord-nevers only able to afford subscriptions to a small number of SVOD services, like Netflix and Amazon Prime, AVOD outlets—which now enjoy prominent placement on smart TVs and connected TV devices—have established themselves as a frictionless and free way to expand their viewing options. Cable subscribers have joined the party, too: Tubi became the first AVOD outlet added to Comcast’s Xfinity X1 and Cox Contour set-top boxes. AVOD also provides advertisers a long-awaited opportunity to secure a streaming toehold while reaching two elusive audiences: the adult 18-34 demo (which makes up half of Pluto’s audience) and cord-cutters (Xumo says 70 percent of its users are cord-cutters or “light TV” viewers).

Illustration: Matthew Billington; Photography: Patrick James Miller

Suddenly, the retro notion of free TV—with ad loads that are roughly half of the linear average—has emerged as a lucrative and essential component of the industry’s streaming future. Now bigger players like Viacom are eagerly pushing into AVOD. “Everybody likes value—and it’s hard to beat the value of free,” says Scott Blanksteen, vp of Walmart-owned Vudu, which created its own AVOD offering in 2017, the same year that Roku rolled out the Roku Channel. In January, Amazon-owned IMDb joined the bandwagon by launching Freedive. Most recently, on March 28, Sony Pictures Television—which had been looking for a partner on its Sony Crackle AVOD since last summer—said it was selling a majority stake in the service to Chicken Soup for the Soul Entertainment; the new venture, Crackle Plus, will feature content from both companies.

The velocity in the AVOD space “is an acknowledgment that OTT is really coming into its own,” says David Cohen, president, North America, Magna Global. “Marketers are starting to sit up and take notice. These are not tiny endeavors. These are large-scale, full-sight, sound and motion opportunities with good targeting and good measurement.”

Last year, OTT ad spending topped $2.7 billion, a 54 percent increase over the previous year, according to Magna Global’s U.S. ad forecast. While that is a drop in the bucket compared to the $70 billion TV advertising market, it’s a rapid growth area—especially as companies like Viacom begin deploying their massive ad sales forces. Currently, says Cohen, “OTT represents something like 14 or 15 percent of an average consumer’s video diet, yet it’s under 5 percent of spend. That will right-size itself over time,” just as it did in the mobile space. “We’re pleased about that. Marketers are looking for additional outlets to capitalize on the decline in linear viewership.”



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