Commentary
The End of Ad-Free Streaming?
- by Cory Treffiletti , Featured Contributor, September 27, 2023
That’s it! The era of commercial-free streaming is essentially over.
This past week, Amazon announced it will be including ads in its Prime Video streaming service, and offering subscribers the chance to pay more to avoid them.
This follows on the heels of Netflix and Disney offering the same services, although they all seem to have gone about it differently. Both Netflix and Disney first raised the price of their core services, and then announced the addition of an ad-supported model that will be less expensive.
To date, the data seems to suggest that very few (if any) people have opted to downgrade to the ad-supported model. This path chosen by Amazon will certainly help us understand if people are willing to pay $2.99 more per month to avoid the interruption of ads, or not.
Why are the streamers relying on a model that is questionable in terms of efficacy? Didn’t we learn from the Internet 1.0 that an old model doesn’t always work in a new medium?
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I work in advertising, so I do pay attention to ads, but the data suggests not many other people do. Some studies show that as much as 90% of viewers will skip, ignore, and pay to avoid the commercials completely across all platforms.
That means what advertisers spend on video is wasted to the tune of 90% of their budgets. As a media guy at heart, I think that number is painful. Video is the fastest growing medium across all channels, and it is the core of a marketers’ budget in today’s landscape.
When we first launched the Internet, we looked to print for an ad model that would work, and we came up with static ad banners. They continued to evolve, but banners are still the lowest common denominator of online ads. Search became the most effective model, and it took Google to innovate on what others had already been doing with classifieds.
The streaming services are faced with a conundrum. They can’t reliably acquire or retain more subscribers, so they are looking for additional ways to increase their revenue. They are currently relying on the old-school standard of commercials, but consumers don’t like commercials. They hate having their content interrupted.
There must be other options for them. In full disclosure, I work with a company that is doing product placement, which is a solid opportunity for the streamers, but in fairness, I do think they have even more ground to work with.
Streamers have an entire ecosystem of monetization opportunities they can explore. Beyond product placement and embedded ads, they have the start menu and the search functions in their UI. Targeted display ads and integrated ads based on the content being searched represent a very interesting place to reach an audience with advertising that is targeted.
Streamers also have the opportunity to embed clickable shopping into their UI. Disney+ recently started doing this, but I have been wildly unimpressed by this feature, since it’s buried deep in the viewing experience, making it hard to find. If it was surfaced earlier and more upfront, it could work extremely well.
Even the introduction of full-screen ads during the start-up, search and selection of shows to watch could be interesting, more like how the movies do trailers and ads upfront. The consumers do not like their content interrupted, so why do we keep interrupting them?
The models will continue to shift over time as streamers look to create new ways to monetize their content. Some will work better than others, and the next two to three years will tell the tale.
Cory, there's no credible evidence that consumers who use ad-supported media skip or otherwise "avoid" 90% of the ad messages that they are "exposed" to. The real figure is much lower and this has always applied--to radio in the 1930s and 1940s, to print media, to TV in its heyday in the 1950s and 1960s and now, to digital media. Most consumers have always accepted the fact that the content that they are using comes to them largely because of advertiser dollars. Yes, there is a vocal minority of ad haters---generally very light media users---but there is another group of roughly equal size who find many ads helpful and informative---with most of us falling in between these extremes. For the majority, it depends on what the ad is about, whether it is able to capture and hold our attention,whether what the ad is saying is believable, whether we've seen the same ad recently ---or not, etc.
Most advertisers know that some consumers avoid their ads---but they also know that if an ad campaign is successful, that it will produce ad awareness results---and sales----there's tons of evidence on that score.
They key phrase is "pay to avoid." Yes, people who consciously use ad-supported media accept the trade off of commercial breaks for the content they want. But there are less and less of those every year, with Gen Z and soon Gen A leaving things like linear TV and radio in the dustbin of history. Cory is correct; this disruption will be rejected by consumers who can afford the higher streaming tiers, resulting in ads being seen only by older and/or low-income subscribers who are simply not as valuable to the marketplace. Its not a matter of people who are "vocal ad-haters;" it's introducing an old model to new people who have become accustomed to life without it.
As you will soon see, if you haven't already, the pundits and prognosticators will pronounce ad supported tv dead and ignored by younger generations. Maybe someday. Just not yet. I've heard these arguments for 30 years. Only problem is the data on viwership doesnt support it. Truth is, there is room for both ad supported and subscription models. Always has been. My bet says it will remain so.