Glossary
AVOD (Advertising-Based Video On Demand)

AVOD (Advertising-Based Video On Demand)

AVOD (advertising-based video on demand) is a monetization strategy used by video-on-demand platforms. It offers users free access to on-demand content, in exchange for watching ads. This generates ad revenue, which offsets production and hosting costs.

What is AVOD?

A monetization model used by several major video-on-demand platforms, AVOD offers viewers free, unlimited access to video content on the platform.

Instead of charging viewers to watch content, this strategy aims to tap into these platforms’ vast audiences to generate revenue from advertising.

Being able to watch their favorite videos for free is highly alluring for users, as evidenced by the hundreds of thousands of viewers who throng to these platforms. Figure this — the US is forecast to have around 140 million AVOD viewers by the end of 2023, growing to over 170 million by 2026.

Before we dive into the technicalities, let’s look at who’s who in the AVOD world and how the strategy makes money.

Publishers

These are the OTT platforms that create or host content, where advertisers pay to place their ads.

The more attractive the content is for viewers, the more attractive it becomes for advertisers, and the more revenue it brings in for publishers.

Giving users free access to quality content adds up to a high view count on AVOD platforms.

Advertisers

Advertisers pay publishers to get their ads featured on streamed video content, helping them generate brand awareness and encourage conversion.

Advertisers usually rely on publishers for ad targeting on the platform. Publishers’ access to user-level data means they can deliver precise segmentation and highly personalized targeting, leading to better return on ad spend.

Content creators

AVOD platforms don’t have to make or buy content: instead, it’s posted by an army of independent content creators. As well as building their own brands, these creators benefit from a share of the ad revenue and potential sponsorship opportunities.

Users

The end consumers in the AVOD model, users are the viewers who access publishers’ platforms to watch their favorite content for free – while also watching the ads alongside it.

AVOD platforms

AVOD platforms are wildly popular with users, and nearly one in two internet users frequents them in the US.

The best-known AVOD platform is YouTube, the video behemoth with over 2.5 billion active users. Although signing up on the platform is free, accessing content means you have to watch ads before, during, or after your chosen videos.

YouTube shares its advertising revenue with its content creators, incentivizing them to keep making and posting videos.

Other popular AVOD platforms include Hulu and Tubi. Like YouTube, Hulu offers a premium plan for users who prefer to watch ad-free content.

How does AVOD work?

So, how do AVOD platforms actually get the ads in front of viewers? There are two options:

Client-side ad insertion (CSAI)

This method inserts ads directly into the viewer’s video player (the client) in real time. Ad markers in the stream trigger an ad request, the video is paused, and a relevant ad is delivered to the user’s device before the video restarts. The real-time aspect gives advertisers full control and enables precise audience targeting.

Server-side ad insertion (SSAI)

With this option, ads are placed in the video stream on the server side, and then sent to the viewer’s device. It’s also known as dynamic ad insertion, because the ads can be tailored based on geography, behavior, demographics, and more.

Another name for this is ad stitching, because the ads are embedded (“stitched”) right into the content for a seamless viewing experience. An added benefit is that ads can then bypass ad blockers, as they appear as part of the content.

The advantages and disadvantages of AVOD

Users get free content, while advertisers, publishers, and creators make money — sounds like a win-win, right? It’s true that AVOD has a lot to offer, but it’s not without its challenges. Let’s look at the main pros and cons of this model.

Advantages

1 – High viewership

84% of users claim they don’t mind watching ads in exchange for free content. That’s good news for advertisers and publishers: revenue in the AVOD market is projected to reach 41.13 billion US dollars in 2023, as more and more viewers choose to access their favorite content this way.

2 – Low risk for publishers

Unlike subscription-based services (Netflix or Disney+, for instance), AVOD platforms don’t have to invest in creating content or buying rights to it. Instead, they serve as a platform where content creators can upload their videos to reach their audience, and get a share of the revenue from advertising that’s incorporated in their content.

3 – Incentives for content creators

Offering content creators revenue incentives to upload their videos means that new content isn’t a challenge for AVOD platforms. The more people watch a piece of content, the more ad views it generates. That means more revenue for the platform, and a bigger slice of the pie for the content creator.

4 – Better ad targeting

Advertisers have good reason to throng to AVOD platforms, as they provide access to a large and diverse user base, with personalized targeting based on publisher data.

5 – Flexibility

Publishers can choose from different ad formats (more on this shortly), and decide at what point in the stream to display ads. This allows them to experiment to achieve the best user experience and ad impact.

Disadvantages

1 – Poor user experience

When not done right, ads can disrupt the user experience, potentially leading to a drop in viewership and even churn. Some users may be willing to pay for a premium, ad-free plan, but the real secret here is to get the timing, creatives, and frequency right.

2 – Attribution and measurement challenges

The passive nature of video viewing makes it hard for advertisers to measure the true impact of their ads. Unless a user actually clicks on your call to action (fairly unlikely if they’re in the middle of watching something), you won’t know if they’re even paying attention — they could be checking their phone or grabbing a snack while waiting for their video to play.

3 – Uncertain revenue

When advertisers are paying based on the number of ad views or clicks, the actual income the publisher receives can vary. If ads are skippable, viewers may not watch them, meaning no revenue is generated. Alternatively, as mentioned above, advertisers could be paying for “views” where the user wasn’t really watching. For publishers, adding a subscription option is a way to generate a more consistent income stream.

AVOD vs SVOD vs TVOD vs PVOD

Now that we’ve established what AVOD is all about, let’s explore how it differs from other monetization models.

SVOD

Short for subscription video on demand, these platforms require their users to pay regular, fixed subscription fees to access content. SVODs usually feature niche content and invest in content creation, winning them loyal users. Examples include Netflix, Amazon Prime Video, and Disney+.

TVOD

Transactional video on demand platforms are similar to AVOD platforms in that users can sign up for free, but to access content on the platform, they’ll have to rent or buy it individually.

An example of a TVOD service would be Apple iTunes.

PVOD

Short for premium video on demand, this model is typically used alongside other monetization models. It gives users first and exclusive access to brand-new content in exchange for a premium fee.

Disney+ used PVOD to great effect with “Mulan” in 2020: in some countries, the movie was running in theaters almost at the exact same time as being released (for a fee) on PVOD.

AVOD vs FAST channels

Free ad-supported television (FAST) works on the same principle as AVOD, in that users don’t have to pay to access content and the revenue source is advertisement — but that’s where the similarities end.

FAST channels are linear, like cable TV channels, delivering content to a vast audience with ad breaks. Unlike with AVOD, the user has no control over what’s being played on the channel. Popular FAST platforms include Pluto, Tubi, and Roku Channel.

AVOD ad types

We mentioned earlier that publishers can choose from a range of formats for displaying ads on AVOD. Here are the main types:

Pre-roll ads: These run before the chosen video starts, meaning users are engaged and ready to watch, but don’t have their viewing experience interrupted.
Mid-roll ads: With mid-roll ads, the chosen video is paused partway through to display the ad before the content resumes. Understandably, this can be disruptive for viewers. But if you get the length, frequency, and placement right, midroll ads can be effective at reaching an already captivated audience.
Post-roll ads: Appearing when the user’s chosen content ends, these ads carry a high risk of viewers switching off or walking away — so grabbing attention immediately is key.

You might also come across the following:

Display ads: Rather than being attached to a video, display ads appear on the platform itself.
Banner ads: Unlike other formats that fill the screen, banners can be placed across the top, bottom, or side of a video while it plays.
Interactive ads: These modern, highly engaging ads encourage the viewer to interact with them, for example by playing a mini game or completing a poll.

Publishers, is AVOD the right model for you?

Are you a publisher looking to monetize your OTT platform? AVOD could be the right model for you if:

You want a relatively straightforward way to acquire new users, without having to manage complex subscription models.
You’re looking to scale your platform rapidly, and prefer not to invest in content creation.
You can maintain a constantly fresh library of content that appeals to a wide audience base, to ensure high user engagement and low churn.

How to get started with AVOD as a publisher

If you’ve concluded that AVOD is the right model for you, follow these steps to get your platform up and running:

Choose a reliable video content management system (CMS) to host and manage your videos.
Develop your OTT platform from scratch, or invest in an OTT app builder.
Select a reliable content delivery network for fast video delivery to users.
Explore the various ad monetization options and technologies. For example, ads can be instream (within a video) or outstream (appearing elsewhere on the page). You can use ad podding to group ads together. And you can choose from VAST (Video Ad Serving Template) or VPAID (Video Player Ad Interface Definition) to get your ads onto screens.

Key takeaways

AVOD is a video-on-demand monetization strategy, where the platform relies on advertisers to generate revenue while users access their favorite content for free. The best-known AVOD platform is YouTube.
AVOD differs from SVOD, PVOD, and TVOD, where users have to pay to access on-demand content. FAST channels rely on ad revenue, but they’re linear and the user can’t control the content.
Ads can be placed either through the client side (the platform itself) or the server side. The former can be adjusted in real time, whereas the latter stitches ads into the video for a seamless experience.
For publishers, AVOD is a low-risk and flexible monetization model. For advertisers, it provides access to a large, diverse, and engaged user base, while enabling detailed segmentation and targeting. Meanwhile, content creators receive a revenue share incentive for uploading content.
Viewers like AVOD because it’s free, but too many ads at the wrong times can damage their experience. Advertisers also face challenges with measurement and attribution, while publisher revenue can be unpredictable without a subscription option.
Video ads on AVOD can run at different points in the content: pre-roll, mid-roll, or post-roll. Alternative formats include banner, display, and interactive ads.
As a publisher, you should consider launching an AVOD platform if you want to scale it up fast, don’t want to invest in content creation, have content for a wide audience, and prefer to avoid complex subscription models.
To get started with AVOD as a publisher, you’ll need a reliable content management system and content delivery network. You should also consider how and where you’ll place ads, and via which system.