The number of users of advertiser supported online video services has increased significantly over the last three years, with growth rates of up to 20% a year and the launch of 15 new services. However, the market needs to secure higher revenues to become sustainable.
Market analysts Dataxis report that AVOD revenues in Europe have grown from just over €2 billion in 2016 to an estimated €6.75 billion in 2021.
A growing number of services from the United States have entered the European market and account for a growing share of the advertiser-supported online video market. There have also been new European players, like Watch4, Rakuten TV Free, Filmstream and Joyn.
“The European AVOD market remains nascent, and some warning signs need to be considered,” warns Dataxis analyst Thibault Giry. While revenues are still increasing faster than the total number of monthly active users, the year-on-year growth has been decreasing steadily since 2017, from 35% in 2017 to 23% in 2020.
That is far from negligible in the context of the coronavirus pandemic. A significant share of these revenues is still captured by YouTube and broadcaster services, while smaller European pure players struggle to generate significant revenues. Only 15 out of more than 125 advertiser-supported services succeeded in generating more than €1 a month from their users.
While broadcasters can rely on their traditional business to fund production, acquiring programming remains a major challenge for smaller players.
The mixed economy model, combining advertiser funded programming with premium subscription tiers, could be key, as embraced by Hulu, Discovery Plus and Peacock, among others.