Try as we might to recapture the Halcyon Days of infinite streaming subscriber growth, the last several months suggest that ad-supported content is in a sustainable upswing.
Netflix and Disney will launch their ad-supported tiers in Q4. FAST-live channels continue to explode, with DistroTV just adding a whopping 120 new FAST channels to the mix. Advertisers now have so many options that it borders on overwhelming. But how much is too much? And considering so many new players and the broader economic landscape, will there be enough advertising pie to go around?
Heavy hitters like NBCUniversal CEO Jeff Shell and Paramount Global CEO Bob Bakish recently acknowledged signs of a possible advertising slowdown, with Bank of America analyst Jessica Reif Ehrlich warning this month of advertising “storm clouds developing.” Still, it’s logical to assume that inventory sellers will remain busy because so many ad dollars are flowing out of traditional linear TV and into their OTT coffers. In addition, this is a midterm election year that Kantar predicts will attract $7.8 billion in political ad spending, of which at least $1.2 billion will go to connected TV platforms. Slowdown or not, advertising is hot. Very hot. Perhaps hot enough to burn right through any temporary cold spells.
Still, filling ad inventory in the digital realm remains complicated, perhaps best illustrated by all the reports surrounding Netflix, which reportedly has been talking to anyone who will listen about getting help with its Q4 plans for an ad-supported tier, including Comcast/NBCU and Alphabet’s Google. Recall that Netflix originally planned to take up to two years to figure out the AVOD landscape but later accelerated the timeline amid continued Wall Street pressure. Pain can be a great motivator. Shell, for his part, didn’t make any news at Cannes Lions when questioned about reports that Netflix is pining to hook up with Comcast’s FreeWheel ad-tech arm, but he slyly noted his lack of surprise that SVODs are increasingly enamored with advertising.
“That’s where the money is,” he told CNBC’s Julia Boorstin onstage, as reported by Deadline.
Which brings us to why advertising remains so attractive for SVODs, especially Netflix, which boasts the largest global subscribership (by far) at nearly 222 million. Disney+, the other major service starting an ad-supported tier in Q4, is a little more than half that size but still much larger than other SVODs out there. If you hear a giant sucking sound in Q4, it will be ad money flowing out of other outlets and into the coffers of these two powerhouses. How much of that will come from linear TV vs. other OTT providers is anyone’s guess, but it will likely take a pound of flesh from both. If ad spend slows down across the board this year as many predict, the fall of 2022 could potentially get rough for many ad-supported services lacking premium clout.
More interesting than the rat race for ad dollars is the willingness of fierce competitors to partner and work together in a “frenemy” capacity, using those deals as a hedge against an uncertain future. Netflix’s sniffing around for ad-tech and ad-sales help is the perfect example. Sure, Netflix competes with everyone for eyeballs, subscription revenue, and soon ad dollars. But it’s so globally integrated and attractive to brands that a company like Comcast’s NBCU, whose Peacock service is but a gnat buzzing around Netflix’s head, is willing to entertain the notion of helping a major competitor just to get a piece of what could amount to billions of dollars once Netflix’s ad operation gets up and running.
Netflix also has deeper and longer-term first-party data on its subscribers than anyone else, which might ease its slide into newer areas like “t-commerce” to bank retail sales commissions on top of the money it’s vacuuming out of Madison Avenue. Case in point: Roku, which already has users’ credit card information, just announced an exclusive t-commerce deal with Walmart for shoppable ads that put purchases just a few clicks away. Netflix obviously could put a system like that on steroids. According to One Touch Intelligence’s VODTRAK intelligence service, roughly half of Netflix’s total library of 55,000 episodes are original movies and TV shows, with those 23,000 episodes representing more original content than is available on all of its peers’ services combined. Fresh originals (especially active series) could be even more attractive to advertisers seeking higher engagement levels.
In the end, the streaming players will keep fighting for baskets of money, whether from advertisers, subscription fees, or new areas like t-commerce. Everybody’s trying to survive long-term. But we may be entering a new era of selfish cooperation in which players big and small use each other as insurance against the chaotic uncertainty ahead. Trust but verify, as they used to say. Perhaps we should call this new reality “Mutually Assured Duration.” It’s truly a MAD, MAD world.
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.