With streamers beginning to de-prioritise further subscription investment, Omdia’s Adam Thomas explains why the advertising model will drive revenue in the years ahead.
The online video sector has been experiencing noteworthy rates of revenue growth for well over a decade and Omdia forecasts that this will continue for at least a further five years. By 2027, the sector will be generating annual revenue of $451.9bn – more than five times the $78.5bn it was worth in 2017.
After a big spike in revenue due to the global COVID-19 pandemic, online video growth levels have now returned to more measured increases. The pandemic boost, however, served to push online video squarely into the media & entertainment mainstream, raising its profile into a much more prominent position.
The segment’s early growth was driven predominantly by SVOD, as Netflix and Amazon Prime Video expanded their SVOD offerings across the world, which put them at the forefront of global expansion. However, shortly before and during the pandemic, those two pioneers were joined by several direct-to-consumer (D2C) online video services from major Hollywood studios such as Disney+, HBO Max, Peacock, and Paramount+.
These newer players created an ultra-competitive environment that benefited from the opportunities that the pandemic created by rolling out low-cost offers to generate significant subscriber scale.
However, with the pandemic dust now settled, that rush to gain scale has largely been reined in. Online video services are de-prioritising investment in further subscription growth in favor of revenue generation and profitability. This is being driven partly by a depressed global economic scenario but also, simply, a business need for companies to place their operations onto a profitable footing.
With new monetisation methods being explored, particularly advertising, ad revenue will be the biggest driver of revenue looking ahead. Advertising took a 58% share of global online video revenue in 2018, and Omdia expects this to grow to 64% in 2027.
The extract above is from ‘Media & Entertainment Viewpoint: Market Landscape Report – 2023’ by Adam Thomas, Omdia’s senior principal analyst for TV, video and advertising, and available to read in full here (with a subscription).