Just over 80 years ago - July 1, 1941, to be precise – the first TV advertisement aired.
It was a 10 second spot for Bulova, broadcast on NBC and watched by a meager 4,000 people. A few months later, America entered WWII which put a stop to TV sales and a temporary halt to the inevitable rise of TV ads. By 1947, when viewers tuned into the first televised World Series to watch the New York Yankees beat the Brooklyn Dodgers in seven games, the age of mass audience engagement had truly begun. An estimated 3.9 million viewers tuned in, and the era of lucrative TV advertising began, filling the coffers of Mad Men for decades to follow.
Fast forward to 2007, when Netflix launched streaming, providing a rather convenient way to watch shows without ads interrupting the experience. Life was good for viewers, but no doubt rather concerning for Madison Avenue and beyond.
But as we wind down 2022, the very company that disrupted the ad market is set to embrace it, rejuvenating the business it once stole eyeballs away from. With the service’s premium subscriber base seemingly capped out, there is an urgent need to create a secondary audience of consumers willing to pay a portion of that typically charged with ad-revenue expected to offset the gap.
Further, rising content costs and Wall Street’s push to have media companies manage their streaming services towards profitability (gasp) is prompting a return of ad-supported TV. This shift had already begun but the true pivot, like the ’47 World Series, will be coming in a matter of weeks as both Disney+ and Netflix hit the U.S. market with their ad-supported streaming plans. More importantly this is reshaping the content distribution, pricing, and packaging strategies that will determine the winners in the next chapter of the proverbial streaming war.
What’s old is new again
Of course, it’s hardly an original idea.
Recall broadcast TV, basic cable, and premium channels; the construct that shaped programming distribution since the early 80s. It’s in the middle of being reshaped into FAST (Free Ad-supported Streaming TV), AVOD (Advertising Video-on-Demand) and SVOD (Subscription Video-on-Demand). According to NPD’s TV Switching Study, while fairly new, FAST already reaches an audience of 43.5 million unique U.S. households each month through distribution on over a dozen services such as Pluto TV and Freevee. Today, each of these services reach a rather different demographic. The opportunities are vast: migrate ad-spend to FAST, use it to generate an audience for your IP, and look for opportunities to use it to drive viewers to; wait for it…premium subscription channels, known today as SVOD. In other words, while ad-supported services open the door to more viewers, there is still the dream of upgrading them.
Notably, the viewer commitment to ad-supported streaming TV isn’t quite the same as those paying the premium for ad-free viewing.
Take Amazon for example; those watching the same movies on Freevee with ads as compared to Prime Video without ads are less likely to complete the movie. In fact, our Subscription Video Track data reveals they are eight percentage points less likely to do so. Free streaming and ad-tiers, while presenting vast opportunities come with hurdles. Our research has shown that viewers of ad-supported streaming services have less vested in content availability, exclusive programming, and search. The key point to remember is that many of them are not premium viewers. As such the proliferation of ad-supported subscription plans will drive a greater need to re-bundle services to retain subscribers. Sounding a bit familiar yet? We’re already seeing this happen, such as the recent integration of Showtime with Paramount+.
When considering what’s next, I’d argue the first step should be revisiting successful strategies from the past. Effective distribution strategies should consider the optimal channel, be it FAST, AVOD or SVOD. Evaluations should have detailed financial models showing how much advertising revenue can offset, or even surpass, lower subscription costs. Lastly, and I can’t stress this enough, be thoughtful when assessing a re-bundling strategy. At this early stage of the redux service bundling will be a critical subscriber retention tool. But it has the potential to label streaming with negative consumer perceptions like those that plagued the cable industry. The guiding principle should be delivering greater value to the viewer in a profitable manner.
John Buffone is a vice president and industry advisor at The NPD Group. With over 20 years of experience in the consumer research and entertainment industries, John has advised many of the largest media and consumer technology brands in the industry.
He offers his industry expertise on trends that focus on how connected devices are rapidly changing the way consumers use technology at home and on the go. His research focuses on the confluence of digital content distribution and consumer electronics trends.
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 represent the opinions of Fierce Video.