This story was originally published in the 2024 Winter issue of strategy magazine

Over the last year or so, nearly every major streaming platform in Canada moved to offer a more affordable ad-supported tier to subscribers. This, after several years of players like Netflix showing no intention of monetizing their platforms this way, with CEO Reed Hastings going as far as saying it didn’t want to participate in advertising’s “exploitation” of viewers.

Prime Video is up next to become an advertising-based video on demand (AVOD) service, with plans to introduce ads in early 2024, on the heels of other subscription-based platforms previously doing the same. Netflix debuted an ad-supported tier in Canada in November 2022; Crave followed suit in June 2023; and Disney+ rolled out its own ad tier in November of the same year, each entering a marketplace that includes other AVOD platforms like CBC Gem and Pluto TV.

Media buyers see opportunity within the AVOD market due to a growing audience, reduced ad clutter compared to linear TV, and increased targeting and measurement capabilities. Buyers also speculate there could be new ways to engage with consumers via AVOD that aren’t available in broadcast TV – such as paying a premium so that when users open a streaming platform on their TV, an ad could be the first impression delivered to them.

The adoption of ad-supported tiers has advertisers equally excited to pair their work alongside popular, premium titles, especially as more viewers drift away from traditional TV in favour of streaming platforms that have steadily risen in popularity for years.

“It’s unlike anything else. They already have an ingrained viewership,” Sarah Thompson, president, media at Dentsu. “We have platforms that have built audiences over time, and now they’re putting in place advertising opportunities. So that changes the nature of the game.”

Sarah Thompson, Dentsu

The number of Canadians who watch streaming TV has increased 57% in the last two years, according to Vividata’s October 2023 study of Canadian consumers. Netflix and Prime Video were rated as the two most popular streaming platforms in that study. Crave reports that it has 3.1 million subscribers, while CBC says on-demand video views on Gem were up 27% in the fall of 2023 (versus the same period last year) and time spent jumped 20%. Meanwhile, Statista forecasts that the number of users in Canada’s AVOD market is expected to reach 24.3 million by 2028.

In Netflix’s recent Q3 financial report, the streamer noted that in countries with an ad-tier option, 30% of sign-ups were for its ad-supported plan, and added that there’s more work to be done to scale the vertical. The company said it hadn’t planned for ad revenue to be material to its business in 2023, and that it’s still laying the foundation for what it believes “should be a multi-billion dollar revenue stream over time.”

The ad units often available to advertisers on streamers include pre-roll, mid-roll or post-roll, across TV, mobile apps, OTT devices and web browsers. Streamers are often also able to offer advanced data for targeted ads that are customized for specific demographics, viewing habits, programming themes and niche genres. Many of these streamers can also monitor feedback and respond to issues when it comes to viewer experiences, such as frequency, quality and suitability of ads.

For the Bell-owned Canadian streamer Crave, advertisers can purchase ads programmatically from the platform’s English and French catalog. Advertisers can also choose between direct programming guaranteed and non-guaranteed options, with targeted messages.

“Ads can be targeted to audiences and can include geo-targeting on Crave,” Bell Media VP of advertising sales and partnerships Perry MacDonald says, adding that Canadian advertisers can leverage first-party and third-party data through Bell’s DSP.

In November, Netflix looked back at the first year of its ad tier in Canada. It said an average of four minutes of ads per hour currently air on Netflix, but it varies based on the title playing, with ads selected for viewers based on their interactions with the platform, their general location and other information they’ve shared with the company.

The streamer said it’s been working with Microsoft Advertising to elevate measurement capabilities and roll out third-party verification. It’s also expanding the variety of ad lengths, as well as the capability to target mobile devices, more specific genres, time of day and audience demographics. 

Looking ahead to 2024, Netflix plans to offer an ad-free episode for users who have watched three consecutive ones of a title, as well as the capability to showcase QR codes in advertising creative running on Netflix. Additionally, after making some of its content available for sponsorships in the U.S. in 2023, that practice will expand globally in 2024.

Elsewhere within the AVOD space, national broadcaster CBC has had its own AVOD platform since 2018 in Gem, along with French-language streamer ICI Tou.tv. “We are currently enjoying record account sign-ups for our free tier, which validates both the quality of the offering but shows how consumers are looking for more cost-effective forms of high quality entertainment,” says Gigi Forth, CBC and Radio-Canada Media Solutions executive director of national and corporate partnership sales. “Ads are a part of this free experience and it’s a value exchange a large segment of our audiences prefer over paying for a premium, ad-free experience.”

Aside from standard video ads that run between six seconds and a minute, the CBC says it’s also experimenting with offering advertisers longer-form mid-rolls and end-rolls, and that it supplies ad units like big box and double big box. But more than that, the CBC offers sponsorships of its content collections and specific shows, as well as branded content campaigns with full-service production and tile placements, and client-supplied long-form video.

Some in the industry believe the arrival of advertising could lead to forward-looking streamers and brands offering ads that aren’t bound by the typical limits of linear TV. Publicis Media Exchange Canada president Jeff Thibodeau, for one, says he foresees novel marketing strategies like sponsoring ad-free blocks on digital platforms, or some kind of in-video activation or conversion, where if you see a product on screen, you can then select it, and have the option to purchase. 

“You have to look to create value for the customer. Obviously, the value right now is the exchange of ‘You’re going to watch ads and you’re going to get the content at a discount rate.’ Are there ways that you can reduce the amount of ads in a block and create value for customers?” Thibodeau says. “And [how can streamers add] more interactivity? How can I engage with the ad or the content in a way that linear television and the existing marketplace does not [allow]?”

However, Thibodeau does emphasize that, for now, platforms are simply trying to stand up to ad-supported video, which has been difficult enough in the past year.

Initially, investment in AVOD upon Netflix’s introduction of an ad tier was slow, says PHD Canada’s VP of investment Melissa Kotsopoulos. She expects this to change, and adds that any advertiser would be remiss not to supplement linear TV buys with AVOD. But the number of competitors in the market and the fragmented nature of streaming can slow investment.

“It’s such a fragmented space. There are so many different AVOD platforms and services now that you would have to really layer on a lot of different streaming services in order to achieve any type of scale,” Kotsopoulos says.

Thibodeau agrees that the challenges thus far for marketers on AVODs have been scale, and the fragmented nature of viewing streaming entertainment. “It’s becoming more of a challenge for us to keep a holistic view of a digital video consumer, much less an entire video consumer across their linear and digital experience,” Thibodeau says.

Jeff Thibodeau, Publicis

Thompson adds that the lack of a set standard between streamers on a host of issues – analytics, ad load, approach, general expectations, process – leads to further fragmentation between AVODs, and creates a challenge for advertisers to avoid duplicating reach and irritating viewers who watch titles across multiple platforms on the same day. Another difference in how streamers operate is when some platforms want to approve the creative of ads that run on their service.

Audience attrition is one more potential issue facing AVODs, due to the ease with which streaming subscriptions can be cancelled, and rising household costs in a struggling Canadian economy. Attrition can also happen due to changes in the kinds of content streamers are offering on their platforms, as buyers note that consumers often feel a stronger connection to the titles they’re viewing on streamers, than the platforms themselves. 

“Is the affinity to Prime, Disney or Netflix, or is it to the content that is contained within it? I would always [say] we, as viewers, go after content. And it’s very easy to cancel,” Thompson says.

Another major challenge advertisers face on AVOD platforms is one that persists across all types of entertainment, Thompson shares: attention.

Viewer habits while watching TV, whether it’s linear networks or modern streamers, includes looking at a phone or going to the kitchen, and their attention isn’t 100% on screen all of the time. There’s only so much attentive reach, and it varies between watching video on a television versus a mobile device.

“You have to start thinking about media psychology or behaviour, thinking about ad load, how people transverse these platforms, how we actually consume content,” Thompson says.

AVOD’s growth in the Canadian market has been steady, with nearly every major player now incorporating advertising. But Prime Video’s introduction of ads, especially, is seen as a “game-changer,” multiple media buyers say.

Though Amazon hasn’t released much detail on Prime Video’s AVOD plan, the company has already stated it will aim to include “meaningfully fewer ads” than linear TV and other streaming TV providers. That said, while Netflix and Disney+ introduced ad tiers that users could choose to register for, Prime Video will instead serve advertisements by default, requiring users to take action to switch their subscription plan if they choose to remove ads, achieving significant scale from the jump. Thompson also notes that Prime Video’s connection across its users’ Prime accounts could allow for more refined audience targeting.

“If you look at some of these platforms, they all have the ability to understand who their audience is,” Thompson says. “There’s a huge advantage to that, because we’re connected by some information.”

But as viewer habits and the ability for brands to engage with consumers in new ways becomes possible, Kotsopoulos emphasizes that there is no great difference. “We talk about AVOD versus linear TV in these two different terms, but really to the consumer, it’s the same thing. It’s watching TV.”