China spearheads the rise of AVOD in East Asia, Japan and South Korea lag behind

In the three largest markets of East Asia, AVOD has experienced strong growth over the last few years. In reflection to the recent launch of ad-supported tiers by global streaming players, one may assume this illustrates a pay content fatigue for consumers. In addition, this trend could also stem from a traditionally strong FTA TV consumption which is reviving. What is the most advanced market and how can one explain it? At first glance, the rise of overall AVOD revenues seems to prove consumers increasingly prefer to watch ads to avoid subscription fees. The fastest growing market is China. AVOD players have generated CNY 409 billion ($63 billion) in 2022, up from CNY 246 billion in 2021 ($38 billion) and CNY 116 billion ($16 billion) in 2020. In comparison, the Japanese market has almost doubled over the same period, from JPY 162 billion ($1.5 billion) to JPY 311 billion ($2.9 billion) in 2022. In South Korea, growth has been more moderate. Revenues generated by AVOD platforms amounted to KRW 1930 billion in 2022 ($ 1.7 billion), up from KRW 1320 billion ($1.1 billion) in 2020. China is not only the fastest growing, but also by far the largest market, even when weighing the population of the three countries.   AVOD does not only react to SVOD and TV consumption trends At first glance, it seems like China is simply one step ahead of Japan, which is in turn ahead of South Korea. As a matter of fact, the differentiated rhythms of growth match the different SVOD markets’ maturity states. To start with, the Chinese SVOD market is saturated: most platforms have lost subscribers at Q4 2022. The overall number of subscribers has even decreased from 385 millions at Q2 2021 to 375 million at Q2 2022. Japan and South Korea will not reach this state soon, as they both still experience strong SVOD growth. However, this does not mean that the rise of AVOD is fueled only by pay content fatigue. Conversely to the SVOD market, the pay TV market does not match the AVOD rise. It is still slowly but steadily growing in China and South Korea, reaching 583 million and 31 million subscribers respectively. Only Japan experiences a significant downturn, with its subscriber base shrinking since 2021 (now accounting for 18 million people), and revenues and ARPU decreasing since 2020. Likewise, the rise of AVOD cannot be explained exclusively by strong viewer’s preference for free content, traditionally through FTA TV channels. Although it has uniformly been a bear market in the three countries, free television is more prevalent in Japan and South Korea, where the two-thirds of Japanese and half of South Korean households still watch it, whereas...