As theatrical audiences continue to shrink due to COVID, DVD and Blu-ray sales wane and, for filmmakers, streamer licensing deals trend lower as companies prioritize original production, the film sales distribution business is transforming in real time. We’re now in the age of hybrid windowing, and with it a lot of head scratching and uncertainty. But hopeful independent filmmakers, sales agents and distributors are finding that one release model is generating unexpected upticks in revenue: AVOD (advertising-supported video on demand).

“According to trade news and distributors I speak with, AVOD is one of the fastest growing categories and buyers for all films, as more customers experience subscription cost fatigue,” says Sub-Genre Media’s Brian Newman, a producer and distribution strategist for brands making films.

Says director/producer Eric Schultz (Minor Premise), “If your movie doesn’t sell to Netflix, and you don’t get that big licensing deal, it feels now that all hope is not lost in terms of finding an audience and generating revenue for financiers. Seven years ago, AVOD was not any potential revenue stream, but now it’s coming up in all the conversations with distributors about windowing. It’s a more and more important piece of the pie.”

Giant Pictures’s General Manager, Nick Savva, concurs, saying the emergence of AVOD benefits both distributors and filmmakers. He cites the change from just five years ago, when only a handful of pay-one (the window when films are first made available to viewers who don’t pay a transaction fee) buyers were driving business. Companies like HBO, Showtime, Hulu, Amazon and Netflix held the power. “If they didn’t take your film, you were out of luck,” Savva says. “But now there is a mix of 15 SVOD and AVOD platforms, which is helpful.”

What Is AVOD?

AVOD platforms work in two formats. One is as a curated service where viewers choose the content they want to watch—much like on SVOD (subscription video-on-demand) platforms such as Netflix and Amazon Prime, except that content is broken up with ads. There are also FAST channels, or free ad-supported streaming TV services, that offer live content with ad breaks, similar to television as we once knew it. Indeed, many argue that AVOD is simply ad-driven television making its way online.

The key word is free, or at least with lower rates than SVOD monthly fees. “Not everyone has the luxury of paying for four subscription services,” says producer Noah Lang (The Climb), who has found unexpected revenue for his independent films on AVOD platforms like Roku and Tubi. John Kim, founder and CEO of distributor and aggregator Deep C Digital, adds that many in the current generation of home viewers routinely find ways to watch movies for free, whether by pirating, sharing streaming passwords or now AVOD: “They’ll sit through the ads. They’ll go get a drink, whatever. They want the content for free.”

According to Hub research reported on Marketing Dive, consumers using AVOD have increased from 34 percent in February 2020 to 58 percent in February 2021, while a survey conducted by ad tech company The Trade Desk found 27 percent of cable subscribers were cutting the cord and heading to streaming in 2021, nearly double the figure from 2020.

And the growth of AVOD is just beginning, says Kim. While a significant percentage of content on the current AVOD platforms is five-to-ten-year-old films and television series, it’s now also a space where exclusive or pay-one deals are on the rise. The windowing shakeup means, for some films, AVOD can replace SVOD or even TVOD (transactional video-on-demand, like iTunes rentals), or co-exist with SVOD deals. And, as AVOD channels mature, they are branching into original content, following the path of Netflix, Amazon Prime and other streaming platforms.

Currently, AVOD channels rarely buy directly from filmmakers and instead look to their relationships with distributors, sales agents and/or aggregators who have a large catalog of titles that can feed the demand of these channels and, in turn, the advertisers. “AVOD is a volume game—it really helps when you have a library of content, and most indies aren’t aggregators,” says Newman. “Distributors will take every penny they can get from any source, especially as more SVOD buyers look askance at their catalogs, but I think most independent filmmakers won’t see much success [selling direct to AVOD channels]. I’ve seen success with client films within certain categories, especially action, adventure, outdoor and extreme sports, and even genre categories you find in indie and arthouse films, such as horror and music documentaries.”

Sana Soni is director of sales at 1091, which has more than 3,500 titles in its portfolio. She says AVOD has been one of 1091’s fastest-growing vertical markets. “We have so much content—we are constantly resurfacing new things,” she says. “What might be old to someone could be new to someone else. And each platform needs different types of content.” Niche subjects she has seen working well include paranormal, sci-fi, Black and LGBTQ, sports and travel documentaries and educational content. “We can see how certain services speak to certain audiences.”

Among the various AVOD channels, Roku, for example, opts for the more-is-more approach, offering more than 100,000 titles ranging from action, LGBTQ, romance, family and horror with a broad overall demographic. Tubi, meanwhile, skews younger, reporting that half its viewers are younger than 35, and Black, Hispanic and Asian audiences make up 39% of Tubi’s base of 33 million monthly active users. 

Speaking at AFM, Brian Stevenson, CEO and founder of Sheena Mae Stories, noted that during the pandemic, AVOD was suddenly a receptive place for diverse content, where people wanted to watch more inclusive programming that reflected a search for identity among different cultures. Kim has also seen Black and “less white” content selling well, overindexing the amount of views.

AVOD Revenues

Producer Will Battersby’s film A Good Marriage, directed by Peter Askin, is based on a Stephen King novella and stars Joan Allen and Anthony LaPaglia. Battersby says the 2014 film has made 60 percent of its TVOD revenue again in AVOD revenue. Without providing exact figures, he notes this was “substantially more in the long tail than TVOD revenue was ever going to be.” Producer Giorgio Angelini—whose indie horror My Friend Dahmer was released in limited theatrical via distributor FilmRise, followed by an HBO SVOD deal and a subsequent AVOD run—also attests to AVOD’s consistent revenue generation, saying the film has not tapered off in earnings during its 18-month run thus far. “And that is without ad spend,” he adds.

Lower-budget films—even five-figure microbudgets—are garnering AVOD revenue. Lang, who produced Here Alone, released through Vertical Entertainment, reports he just received a five-figure quarterly disbursement for AVOD revenue. “I was stunned,” he said, “because it’s not even on all the channels yet — just Tubi, Vudu, Roku and a few others.” The same statements show about $3,000 from TVOD channels, which “is crazy,” Lang says. “You can watch the film other places for free!” For his 2016 pandemic-themed production Diverge, “a tiny sci-film film made for $75,000,” he’s receiving checks each quarter from between $2,000 and $4,000, primarily from The Roku Channel.

While revenue-based earnings—AVOD typically pays based on number of views—frighten some filmmakers, Battersby says his experience in self-distribution has shown him that earnings from AVOD are far better in the long run than with transactions or license fees, pertaining to both U.S. and international territory deals. 

“If you think you’ve got a film that will make a moderate amount of money, it’s probably not worth taking a small license fee up front,” Battersby says, referring to an offer he received from one international territory. “You’ll never see anything else, and they have hold of your film for 15 years or so, or two or three years in the case of SVOD.”

In contrast, AVOD’s revenue share model keeps paying out, while filmmakers and distributors in turn gain a more expansive audience base. Typically, an estimated 50 percent of the revenue is split between the channel and the supplier—whether that is the producer and/or the aggregator. The payout figure is dependent on CPMs, cost per thousand, which denotes the price of 1,000 advertisement impressions on one web page. If a website publisher charges $2.00 CPM, that means an advertiser must pay $2.00 for every 1,000 impressions of its ad. Kim suggests the current CPM payouts are bound to increase as the AVOD space becomes more competitive. 

Schultz says for films like Lauren Wolkstein and Christopher Radcliff’s The Strange Ones, which was released in 2017 by Vertical, and his own Minor Premise, currently handled by MPI International, “We’re being guided to believe we can get low-to-mid five figures a year in [AVOD] revenue. If that’s able to be sustained or even increased over the next couple of years, that’s exciting because it can be on par with licensing deals you’re striking with streamers.”

As AVOD grows in popularity, many worry the resulting sea of content will make it hard to uncover unique, non-studio fare. Soni insists that if a film is good, it will be discovered. Some distributors are now working with the platforms to create marketing “shelves” or curated strands that are highlighted on the channel’s platform as a way to build awareness. Soni cites the example of two 24-hour linear channels 1091 they have running with Samsung TV Plus in the United States: Unidentified, a paranormal-oriented channel, and Surf Now TV, a surfing-oriented channel. In February, they will launch a Black talent/culture-themed channel called BlackPix via The Roku Channel.

Brian Stevenson said at AFM he has also had success with “shelves” or “headlines.” In his case, NBC Peacock asked whether he had documentaries that might fit in with their headline series centered around The Defiant Ones, which focuses on the partnership between Jimmy lovine and Dr. Dre, co-founders of Beats Electronics. Building marketing packages is often a good way to get titles on the platform, he added—something he finds more effective than with a stand-alone title. 

Distributor Cinedigm has their branded non-fiction channel Docurama, which contains titles such as The Endless Summer and Black Mother, available on multiple platforms, including Tubi and Roku. Other Cinedigm channels include the recently acquired Bloody Disgusting horror channel as well as independent and specialty film channel Fandor, an acquisition and relaunch that it announced early in 2021. Cinedigm’s portfolio is a blend of SVOD, FAST linear streaming and AVOD channels.

The good thing about such packages, says David Averbach, creative director at The Film Collaborative, whose Tubi titles include The Fabulous Alan Carr and Regarding Susan Sontag, is that more commercial titles allow the ability to add niche titles that might not otherwise have made it to these platforms. 

Still, Averbach and Film Collaborative founder Orly Ravid highlight that smaller documentaries don’t often do well across video on demand, in particular AVOD. “If you think about it,” says Averbach, “people will watch a film like Love, Actually more than once, but it’s doubtful they will watch a documentary more than once, especially if it’s a smaller documentary.” These are the things you have to think about when appealing to wider audiences: “Why will someone click to watch your film?” he asks. Indeed, Lang says different factors can go into the decision to click on an AVOD title: “You have different energies for viewing at different times. I’m never going to pay to see Domino by Tony Scott, but I’ll have a trash action movie on in the background because I’ve had a bad day.”

One AVOD wrinkle Schultz notes is the necessity, depending on the platform, to deliver a “clean” version of the movie. “A few AVOD platforms are going in a direction similar to network TV back in the day,” he says, “where you have to have a general audience edited version of the film. But I don’t find that off-putting or uninteresting.”

The AVOD Forecast

More originals are on the AVOD horizon, with many channels already touting bespoke content as expanded development teams generate new scripted and non-scripted content.

Roku launched Roku Originals in April as part of its growing slate, paying in the ballpark of $100 million for more than 75 shows from the now defunct short-form channel Quibi. Many never before seen, the five- to seven-minute shorts are screened in between long-form programming.

The AVOD conglomerate has also acquired pay-one window streaming rights, tied to an exclusive two-year window, for approximately a third of boutique film acquisition and distribution company Saban Films’s 2021 movie slate. The first title released through The Roku Channel this summer was crime drama Echo Boomers, starring Michael Shannon and Patrick Schwarzenegger. Other films under the deal include Percy vs Goliath (U.S. only) starring Christopher Walken, Christina Ricci and Zach Braff; and Under the Stadium Lights, starring Laurence Fishburne and Milo Gibson. In September 2021, the streamer ordered its first feature-length film, Zoey’s Extraordinary Christmas, directed by Richard Shepard (The Matador), which debuted in December. 

Tubi’s recent slate looks similar to that of an SVOD channel with the company’s announcement that they are spreading more than 140 hours of exclusive first-run programming across its services. The bundle’s first original series was released around Halloween as part of its Terror on Tubi segment titled Meet, Marry, Murder, a true-crime anthology chronicling stories of romantic partner murders, hosted and executive produced by Gossip Girl actress Michelle Trachtenberg. The channel’s first original animated TV series—The Freak Brothers, with the voices of Woody Harrelson, John Goodman, Pete Davidson, Tiffany Haddish, Blake Anderson, La La Anthony and Adam Devine—premiered in November, while upcoming features include sci-fi action thriller Corrective Measures, starring Bruce Willis, Dan Payne, Brennan Mejia and Michael Rooker. 

IMDb TV remain more tight-lipped on their original offerings; however, they have announced they are actively licensing television series including a successor to Judge Judy, Judy Justice; and two projects from TV legend Norman Lear—a half-hour comedy, Clean Slate, starring Laverne Cox and George Wallace, and an hour-long Mexico-set drama, Loteria.

Peacock’s originals include a multiyear partnership with Kevin Hart’s Laugh Out Loud network that will consist of a Hart stand-up comedy special and an original interview series called Hart to Heart. Back in May, the Tina Fey-produced original series
Girls5Eva, centered around a one-hit-wonder all-girl band who reunite for another chance at success, premiered. Pluto too is setting its sights on originals, though for now they told Filmmaker they are focusing on series under exclusive windows, along with the curation of original channels crafted by a team of expert programmers—for example a fight and wrestling channel programmed by an MMA fighter, or a comedy channel programmed by a comedian.

Livestreaming service Twitch, which sees a whopping 30 million+ daily visitors, has continued to embrace interactive content with offerings like Ghost Hunt Live from creator Bruce Greene, who brought along other Twitch creators to the most haunted locations in Los Angeles. The fourth season of Emmy and Peabody-nominated sci-fi scripted series Artificial, from creator Bernie Su and Twitch collaborators, went live in September. Viewers can comment and participate in Twitch’s live programming, or in the case of Artificial, help determine the outcome of the story via Twitch extensions.

Crackle, too, has a number of exclusive shows, with sister company Screen Media developing a slew of series, movies of the week and reality television series. Films that have recently appeared on the channel include the documentary Vince Carter: Legacy and the recent A Great North Christmas. 

Ashley Hovey, director, AVOD at The Roku Channel says their aim is to grow streamer engagement, which then allows for growth in advertising dollars, which the company can then reinvest back into more content. Brands are in turn responding to AVOD’s increased viewing rates. Speaking at AFM, Kristina Shepard—Head of Agency Partnerships & National Brand Team Lead at Roku—said the company is now seeing the streaming eco-system as a must-have for advertisers. It’s no longer the after-thought it was pre-COVID.

While the exact number of ads watched per hour depends on the service, most AVOD platforms show anywhere from four to five minutes per hour in comparison to 14 and 18 minutes per hour on linear television. The number of brands seen per hour is a variable as well—most platforms eagerly sharing that the number of brands coming on board is greater, as are the dynamics of how they can message. 

AVOD, Windows and Advances

Of course, plenty of titles aren’t available on AVOD platforms. Lang surmises larger distributors have the analysts to run models and determine whether a free release on AVOD will wear out our transactional and subscription windows. But with ad-based revenues increasing, he says he’s been talking to one AVOD platform about finishing funds in return for granting the channel a television exclusive, with the filmmaker retaining limited theatrical and Blu-ray rights. For completed films, Lang says he’s received minimum guarantee AVOD offers of $50,000-60,000 for titles already available on TVOD and with non-exclusive SVOD deals. In this case, the AVOD play would start at 18 months after release.

Seth Needle, Screen Media’s EVP of global acquisitions and co-productions, says in some instances the company’s titles—such as the Australian-set thriller Black Water: Abysss and the existential thriller Exit Play—have foregone pay-one deals in favor of exclusives on Crackle. After a set period, films migrate to additional AVOD platforms. 

Needle has also been exploring parallel structured deals where Screen Media shares windows with some pay-one outlets: “We’ve done a few versions of these co-exclusives where the channel gets the film exclusively for a few months up to a year, then Crackle launches the title, so the title is only available on those two outlets.” Screen Media’s film examples with such shared windows are Elliot: The Littlest Reindeer and The Jesus Rolls.

“AVOD channels are also willing to make unique deals,” adds Newman. “An advertiser can pay for a slate of content to be presented with less or no ads, for example. It would be interesting if indie supporters such as foundations or even certain artistic brands would experiment in this arena. Since distribution is the biggest concern facing most indies, it seems worth an attempt to sponsor curated films on a channel.”

Those who’ve succeeded in the new arena say persistence pays off: Filmmakers who keep the energy going through the long tail—whether with a push on social, ad spend or new artwork—can break through on AVOD. And while the traditional progression from a theatrical premiere followed by home entertainment, TVOD, SVOD and AVOD is still the preferred model for driving awareness and revenue, it is by no means the only way to find an audience.

Of course, amid all the excitement about AVOD, most will admit that commercials lessen the viewing experience. But Lang notes that his enthusiasm for the platform began as a viewer. “I became a frequent user of Tubi and Crackle during the pandemic,” he says. “I initially got interested because it’s free, and filmmakers are getting paid, but also from this more democratic perspective. I don’t like ads, but I grew up watching things like Mrs. Doubtfire, where the movie would last four hours because of all the ad breaks. The fact that these services have all these films, independents, studio stuff and five seasons of 3rd Rock [from the Sun], is kind of neat.”

Angelini sums up: “We’re only scratching the surface [with AVOD]—don’t think because the film comes out on AVOD that it is the end of the film’s life. There is a long tail, and it shouldn’t be overlooked.”

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Sidebar: The AVOD Players

AVOD can refer to something as mainstream and familiar as YouTube, Snap TV and Facebook Watch; ad-supported channels found on connected TV entities like Roku, Vizio or Samsung; or dedicated streaming sites like Pluto TV (ViacomCBS), Xumo (Comcast), Tubi (Fox), Peacock (NBCU), The Roku Channel (RokuTM), IMDbTV (Amazon), Crackle (Chicken Soup for the Soul Entertainment), Hulu (Disney), Vudu (Fandango, NBCU) and Twitch (Amazon). More newcomers are entering the fray, predominantly in the United States, though AVOD is quickly making its way abroad. Leading platforms, as mentioned above, are raking in substantial U.S. ad revenue and subscribers.

Several platforms offer tiered subscriptions, such as Hulu, whose ad-supported service, while not free, is half the rate of its SVOD subscription, currently priced at $12.99 each month. The Disney-owned streamer estimates 70 percent of its audience is on the ad-supported plan, helping to promote Disney’s content plus drive its streaming revenue.

Other SVOD services have followed suit with ad tiers, including HBO Max, Paramount+, NBCU’s Peacock and YouTube, the latter two offering free ad-supported options.

Like Hulu, YouTube has far more subscribers for ad-supported content than for its premium service. So, in 2019, the company made the decision to offer YouTube Originals to all two billion of its active users worldwide.

AVOD-specific platforms such as Tubi, The Roku Channel and Pluto also offer both on-demand and linear channels. Both options are free, making it simple to jump online and start watching.

It’s no coincidence that AVOD heavyweights are backed by sizable media entities with deep pockets, helping to pave the way for quality, original content and expanded library catalogues, where the likes of Roseanne, Blossom and Gordon Ramsay’s 24 Hours to Hell and Back rule the roost with mass viewing numbers.

Notable streaming giants not on this list include Netflix and Disney+, which continue to focus on international expansion and—in the case of Netflix—rising subscription rates. Whether the forgoing of ads continues remains to be seen, but Disney’s spend on content for 2021 is estimated at $30.5 billion, according to a Wall Street report released by Wells Fargo, and Netflix revealed a loss of 400,000 subscribers in the United States and Canada in Q2 and failure to hit subscriber expectations in Q1 of this year, suggests that the pressure to adopt ad-supported streaming seems inevitable.