Industry Voices Michael Grebb

As earnings season draws to a close amid an uncertain economy, the age of ad-free SVODs that could do no wrong has given way to a renewed sense that ad-supported content hasn’t lost its mojo.

Advertising-funded content relies on an ancient formula that has worked since the dawn of TV. But in recent years, as Netflix taught the world to binge endless hours uninterrupted by commercial messages, the prominence of ad-supported content has declined as subscription dollars became all the rage. It’s funny what a difference a few weeks can make. The slaughter of media stocks–prompted by leading SVOD Netflix’s surprise subscriber loss in Q1 and exacerbated by a broader market downturn–has changed everyone’s thinking.

As this SVOD re-think intersects with the Newfronts and Upfronts, it’s fitting that many are stepping up plans to make advertising a bigger part of the revenue mix. Whether it’s Netflix and Disney+ rushing to launch an ad-supported tier by year-end or the stampede of media companies big and small launching FAST-live channels, the market conditions have lit a fire under the industry’s collective rear. And make no mistake: There’s renewed ad urgency within both linear and streaming environments, whether it takes the form of traditional linear TV commercials, AVOD and FAST insertions, or sophisticated integrations built around new ad-tech that can digitally add product placement to movies and TV shows. Experimentation with frequency, duplication, and integration is on the rise. This rush to innovation—this “ad-celleration,” if you will—is only just getting started. 

Much of what’s happening in streaming builds upon the prominence of advertising on linear TV as content companies increasingly sell integrated packages across all media types. That’s not particularly novel. But AVODs and FAST channels are clearly the biggest area of growth as dollars continue to shift to digital (Digital media spend was 25% higher in Q1 2022 than it was a year ago and now accounts for more than half of all media spending in the U.S.). As prep work on the ad-supported Disney+ AVOD tier continues, Disney Ad Sales chief Rita Ferro said at MoffettNathanson’s Media & Communications Summit this week that Disney+ ads will max out around 4 minutes per hour. That’s similar to the ad load on Disney’s Hulu AVOD service, which averaged 4.4 minutes per hour in Q1 2022, according to OTI’s ADTRAKER® intelligence service. But it’s well below virtual MVPD Hulu + Live, which averaged 7 minutes per hour during the same period.

Linear-streaming convergence may also be afoot. At MoffettNathanson, AMC Networks Interim CEO Matt Blank argued that increasingly popular FAST channels are already “built on the backs of the linear business” as they often leverage existing advertising relationships. That’s certainly been the case for AMC Networks, which has launched several FAST channels despite sticking to a strictly ad-free SVOD strategy for the rest of its streaming endeavors (at least for now). But it’s clear that the relatively frictionless FAST universe has become the easiest way into the ad game for many SVODs: CuriosityStream is already adding more FAST channels after launching its first one, Now Free, in partnership with Smart TV player LG in March. 

For larger media companies with broad entertainment offerings, FAST channels require finesse because they generally work best when they serve narrow niches that advertisers covet. And that requires a lot of smart slicing and dicing to attract more spots. According to ADTRAKER®, ad loads vary widely depending on the genre of FAST channel in question based on monthly audits of 5-hour blocks of programming across six FAST channels per provider: Peacock, for example, averaged nearly 13 minutes of ads per hour in Q1 2022 on its “Olympic Spotlight” FAST channel compared to only 1.9 minutes per hour on its “Peacock Comedy Movies” channel. Tubi showed an average of 13.7 minutes per hour of ads on its “Newsy” FAST channel but only 0.6 minutes per hour on its “Fox Sports” channel. Xumo’s “Court TV” channel cranked out 14.4 minutes of ads per hour vs. only 0.3 minutes on “Xumo Family.” 

Meanwhile, the launch of new AVODs by Netflix and Disney may become a case study on advertiser behavior. Disney has an easier path because it can leverage its existing advertising relationships forged through ABC, ESPN, and its many other ad-supported ventures. Netflix will face more of a learning curve. But don’t count Netflix out, as its 222 million subscribers give the company nearly twice the global reach as Disney+. So, while Disney+ may be able to scale up healthy ad loads right out of the gate, Netflix could ultimately attract greater revenue as advertisers slice and dice those global audiences (and the juicy data Netflix has been collecting on them for more than a decade). Netflix could also offer new ad products others haven’t tried yet. After all, the streamer likes to be different.

Ad-free SVODs are hardly dead. Millions of people are still willing to pay a little bit more to avoid ads. But recent weeks have taught us that advertising remains the bedrock of how most TV content pays the bills now and in the future. And the renewed realization of that reality is shifting the sands under the feet of media execs who thought they had it all figured out. They never did. As screenwriter William Goldman once famously said, “nobody knows anything.” And he was right.

(More details on the early results of OTI’s recent FAST-live audits are available in this free STREAMTRAK report).

Michael Grebb is Vice President and Lead Analyst for One Touch Intelligence, which provides market intelligence and industry analysis services for leading companies in the media and telecommunications space. The One Touch Intelligence STREAMTRAK series is a complimentary service offering industry professionals insights and context around developments in the digital media sphere.

Industry Voices are opinion columns written by outside contributors — often industry experts or analysts — who are invited to the conversation by Fierce Video staff. They do not necessarily represent the opinions of Fierce Video.