Why AVOD Services Like Xumo Stand to Benefit With Rise of SVOD Offerings Like Disney+

It may look like the year of subscription video on demand (SVOD). But for Xumo CEO Colin Petrie-Norris, the growing list of subscription services only means ad-supported streaming is about to take off. Petrie-Norris doesn’t see SVOD and AVOD as an either-or proposition. Instead, he sees the launch of several high-profile streaming services — including Disney+, Apple TV+ and upcoming HBO Max, Peacock and Quibi — as a boost to ad-supported streaming in a rising tides lifts all boats fashion. For Petrie-Norris, who runs Xumo from the company’s Irvine, California headquarters, ad-supported streaming will only stand out more as viewers continue to grapple with having to for half a dozen streaming services. The thinking goes: If free, ad-supported shows worked for the TV industry for decades, why can’t it work in the streaming age — especially when customers are being asked to spend more each year on the best-known streaming services? “AVOD will benefit and grow off the back off the subscription [services]. They will drive people to streaming, and AVOD will be the beneficiary,” he said. “As long as we can get the quality right. People are not tolerant of people just barfing ads up all over the place — it needs to be something worth me giving you an hour of my time. So quality, linear AVOD is where there will be growth.” That’s where Xumo comes in, he believes. The company offers 10,000 free movies and shows, as well 190 channels, including Fox Sports, ABC News, and channels dedicated to series like “Family Feud” and “Forensic Files”. To get that content to the masses, Xumo has an app, but it’s best known for is its partnerships with smart TV makers like LG, where customers will plug in their TVs and see Xumo’s list of channels automatically installed. After signing new deals with Sony and Panasonic in January, Petrie-Norris said, “over 90% of all smart TVs now carry Xumo’s service in some way, shape or form.” Overall, the AVOD market is growing exponentially. Ad-revenue hit $3.8 billion last year, according to Magna Global estimates, marking a 39% increase from 2018, and in 2020, the industry is expected to increase another 31% to hit $5 billion in sales. That’s still well short of the $70 billion advertisers spend on old school TV ads each year, but Petrie-Norris is betting as more people use AVOD services, and more data is collected, companies will continue to shift their ad dollars towards AVOD. AVOD’s rise has made several mainstay companies acquisition targets of late. Pluto TV, which also offers an array of ad-supported channels, was scooped up last year by Viacom for $340 million, and Comcast was reported last month to be in talks with Xumo about a possible buyout. Petrie-Norris didn’t have much to say about it when asked by TheWrap, only adding the company was “exploring” the best ways to expand its business. But it makes sense why Comcast would at least be interested, with a potential deal allowing Xumo to support Peacock on the technical side. With that as a backdrop, TheWrap recently caught up with Petrie-Norris to talk about the state of ad-supported streaming. The conversation has been lightly edited for clarity: Why do you think viewers are starting to look more towards ad-supported services like Xumo, Pluto TV and Tubi, to name a few? There is an infusion of new [paid] streaming services, and many customers are asking if paying for 4 services — Disney+, Amazon, Netflix, Quibi — is for them. There’s this question of, “what is the right number of services?” And the gateway to adding more paid services is getting higher. Adding the first 1,2 or 3 is fine, but on the 4th, consumers — I believe — are asking questions. Contrast that with AVOD, where I don’t even need to give you an email address to sign up for Xumo. If you stay or come back, it’s purely on the basis of the quality of the content and the value we’ve created for you. We’re asking you to watch some ads, but we’re providing great content. When I started Xumo [in 2011,] ad-supported services were — and I use the term because I have ginger hair — the ginger-headed stepchild of the content industry. (Laughs) That’s not the case anymore. If that was the case, then why did you go that route?  Something happened with curation. Just having AVOD video isn’t enough. When you present a consumer with a big sea of thumbnails, they’ll check out and say, I’ll just go watch “The Mandalorian.” But when you curate channels based on interests, it gives viewers a reason to stick around, instead of just watching for 3 minutes and bailing. It was the way we presented [the content] that gave us more opportunities to show ads without overwhelming [the viewer.] How do you serve ads to viewers who are becoming more and more used to not seeing ads? When I go to VidCon, for instance, most people 20 and younger say they never watch ads.  The answer is, it’s highly dynamic. It’s not a one-sized fits all ad-strategy. It’s not just showing two pre-roll ads before a movie. It could be different the first time you come to our service compared to the second time you watch Xumo. It might be different at prime time versus noon. What we’ve built is not just an ad platform that has a classic 30 seconds of ads for every 10 minutes of content; it’s varying; it’s dynamic, to optimize the yield we get, to make sure those viewers come back the next day. We actually sometimes make sub-optimal decisions where we might make less money in the moment; maybe we don’t show [the viewer] that 90-second pharmaceutical ad, again. We might hold back on an extra ad because we know if we do, then they’ll come back again and watch more next week. That’s the smart engine we’ve built. Can you tell me more about the new deals you have with Sony and Panasonic?  Their smart TV carries us as a natural feature, where you get your local tuned-in TV channels but you also get 190 Xumo channels right in the same guide. You don’t need to go to the App Store — it’s built into the operating system of the TV in a very clever and unique way. Xumo specializes in these services where somebody will come in and say, “I have a big consumer base. I have devices that can carry an IP video signal, but we don’t know much about how to sell the ads. Or how you license the content, manage the content and its discovery.” So they’ll come in and say we’ll interface with you; we’ll open our APIs, just build and plug-in the service and then you run it for us. It’s a rev-share arrangement, so we both share in the risks and share in the upsides. And what’s that rev-share agreement look like?  The rev-share is a 3-way rev share, typically. The content partners, they take a rev share, the device manufacturer, which carries the service to the consumer, takes a rev share, and then we take the remainder. And it works very well, because you have three groups who have a vested interest in making sure it’s discoverable, high-quality content. It’s hard when you start off with a rev share, because a rev share of nothing is nothing. (Laughs) Once we had our first few deals and got this engine running, you can get very reliable, very considerable revenues from the service, and we’ve de-risked it for people. We can predict and model out the yield per user per device pretty accurately now. The addition of Sony is a major new partner. We’re starting with the U.S. first with Sony, but will go onto a global product, starting with many of the similar markets LG is present in — Western Europe, Latin America. We tend to go to markets that have a big enough online ad industry, which can sustain a video service. Xumo is now a global service. It started off in Irvine 8 years ago, and now with markets we’re available in, close to 700-800 million people can now access it. You still need to buy the TV, but that’s still a pretty big footprint we’re operating in.