How Ad-Supported Streaming Will Set a New Scene
Netflix, Disney+ and Amazon are all poised or have already launched an ad-funded version of their platforms in the UK and around the globe. It’s likely to cause a significant shift both from consumers’ perceptions of the services but also to brands’ communications plans.
The Background:
Over the past 5 years, there’s been a shift of viewing for under 45s away from traditional broadcasters in the UK like BBC, ITV and Channel 4 into what has been termed ‘unmatched viewing.’ That is time spent with the television, but until now has been unable to be properly measured through BARB, the television industry’s go-to measurement. It’s been largely dominated by SVOD providers (which are only beginning to be measured to a similar standard) but also gaming and YouTube consumption on the television set. This trend accelerated over the pandemic, when people spent more time at home and a reduced supply of new programming meant traditional TV became less appealing. As the world reopened, viewing habits have largely stuck, although there is increasing evidence the cost-of-living crisis is making consumers think twice about their subscription services. As a result, a cheaper (or even free) offering with adverts is likely to be attractive given the macroeconomic challenges. It’s not a dissimilar picture across other territories with cord-cutting long being a shift in the market in the US.
What’s the offer?
On 1st November, Netflix will launch their ad-supported tier in 12 countries, with the UK launching two days later on 3rd November. Initially it will cost £4.99 a month, £2 cheaper than the most basic tier currently available. There will be some programmes and films which will be unavailable due to rights restrictions, and the account can be used on one device only.
Disney will launch their ad-funded model in the US in December, with the UK expected to follow immediately. In the US, the ad-supported tier will launch at $7.99 a month, which is the current ad-free price point. Those who want to continue with no ads will now have to pay $10.99 for the privilege. This pricing structure is expected to roll out across other markets too.
Meanwhile, Amazon’s Freevee is already in the market, but due to it not being under the Prime branding, it has not had as much pick up both from industry and consumers. Previously launched as IMDB TV, it is a separate app from Prime and unlike Disney+ and Netflix, there’s no subscription fee at all. It has a different content library to Prime, and includes Freevee originals which are largely focused on a female-skewing audience. It remains to be seen whether Freevee will continue as a standalone app or be folded into Prime eventually.
Ok, so what?
For brands:
As it’s rolled out globally, there’s likely to be a shift in paid media budgets moving towards this new offering, beginning with the biggest brands first. Netflix is targeting global clients with million-plus dollar budgets. What will be most interesting is how targeted and personalised the ad offering (which is powered by Microsoft for Netflix) will become. At launch, it is offering rather basic genre and top programme led targeting. CPMs are high, at over £60 which is double what advertisers would expect from ITVX (the new ITV Hub) and All4. As marketing budgets bite, and minimum spends are prohibitively high barriers to entry, Netflix may find that there’s not the deluge of advertisers desperate to use the service that they hope for. However, it’s easy to see a world where you could integrate difference data sources to hyper target consumers, or even more. Imagine using the data scraped from Amazon’s shopping platform to target the leader for a B2B brand, whilst they’re watching the Lord Of The Rings series.
For consumers:
As well as the breadth and depth of the content offering, one of the biggest factors in Netflix’s success has been the UX and design of its platform. It’s fair to say that where Netflix has led, others including traditional BVODs like iPlayer have followed in terms of functionality. But including adverts is likely to test the brand love consumers have for streaming platforms. With ad breaks scheduled in, there’s greater chance of technical playback issues and poor ad targeting, as well as ad placement in thousands of programmes which were never produced with natural ad breaks. Is it really worth the £24 a year saving?
For the streamers:
This appears to be a sensible diversification of their business model for the streamers. The ideal scenario for Netflix would be that the new ad-supported price point of £4.99 will entice new customers to subscribe whilst not worth the downgrade for most of its current subscribers. Ideally, they’d like to see those who are accessing the service via password sharing to subscribe to the ad-supported tier, but until they crackdown on the loophole this is unlikely to happen. Forecasts suggest that by 2027, advertising will account for 22% of Netflix revenues, but will largely cannabalise its base rather than growing the pie.
They may also discover that the ‘premium’ audience they currently have may not migrate to an ad-supported tier, meaning the eyeballs they offer to advertisers is of similar make-up to those from terrestrial television. Can it justify a high CPM if the audience isn’t hard to reach elsewhere?
For earned media:
It’s imperative to be aware of what is happening in broader areas of media, in order to advise more holistically when it comes to comms planning. Earned obviously doesn’t sit in a silo and is one part of an omnichannel media mix which most clients are executing. Even with the rise of on-demand viewing, TV advertising has always been considered top of funnel marketing, but this is likely to see a shift where it could potentially compete with the likes of Meta and Google for more targeted bottom of the funnel activity.
Finally, any move by the SVODs always has an impact on traditional earned media partners like BBC, ITV and Channel 4. The BBC and ITV are increasingly aware of the value of news in their on-demand platforms, and although neither has really cracked it yet, there’s a growing sense that it’s a differentiator the Public Service Broadcasters are looking to wear with pride. In particular, ITV have announced that they will launch an ITV News FAST (Free Ad-Supported Television) channel in their new video platform ITVX. Details of it are still sparse and will likely include rolling news when there’s a major event alongside on-demand exclusive packages. This could provide another distribution channel when considering earned coverage, and demonstrates that video news coverage – whether on television or another device – is still the broadcasters’ ultimate weapon.
Jaine Sykes is Senior Director of Media Strategy at Edelman