Streaming Services Move to More Ad-Supported Content

In the past few years, the viewing habits of consumers have undergone a significant shift. People are moving away from traditional cable and switching to streaming services in record numbers.

Online streaming subscriptions shot up to 1.1 billion by the end of 2020, according to the Motion Picture Association. In the U.S. alone, the number of online streaming subscribers reached 308.6 million. The growing adoption of streaming is forcing advertisers to rethink their spend on OTT spots.

According to an eMarketer prediction, streaming (OTT & CTV) ad spend will reach $14.9 billion by 2023. Moreover, the ad spends on streaming platforms (OTT and CTV combined) saw a 70% increase between Q1 and Q3 of 2020 based on a report from Pixalate, a platform that specializes in ad fraud intelligence.

Advertisers must assess the streaming marketplace to adjust their media buy.

Competition a Top Challenge for Streaming Providers

While more people continue to embrace streaming, the market continues to become increasingly saturated. To meet the insatiable demand among consumers, new players are emerging in the space and adding to the competition. For example, in the last two years alone, Disney+, Apple TV+, HBO Max and Peacock, have joined an established list of heavy hitters including Netflix, Amazon Prime, and Hulu. Flexible subscription terms give consumers the freedom to add or drop streaming services with ease.

As a result, the industry sees high cancellation rates as providers struggle to retain subscribers. In Q3 of 2020, new research from Parks Associates, a market research company, found that the overall annual churn rate stood at 38%. While this is a significant drop from the previous year, the numbers are still high.

Content plays a critical role in subscriber cancellations. According to a Deloitte analysis, 62% of respondents had subscribed to a service to watch a specific show and canceled after finishing the content.

To address high and/or frequent cancellation rates, streaming services continue to increase their spending to prioritize content acquisition and retain talent. Amazon Prime Video, Disney+ and Netflix are estimated to spend a combined $50 billion in 2021 alone. A report from Purely Streamonomics, a streaming research and analytics company, shows that the gross amount spent in 2020 for streamers producing and licensing new content was $220.2 billion and are anticipating a total spend of more than $250 billion in 2021.

Reduced Fees Make Up for a Light Ad Load

Not surprisingly, cost is a crucial factor in the overall experience of streaming service subscribers. The Deloitte analysis found that 31% of consumers canceled their subscription because it was too expensive. Moreover, 23% canceled their paid subscription because they have access to their desired content through a free, ad-supported service.

On the same note, 28% of respondents would even change their mind about canceling if they could switch to an ad-supported tier that costs less than their current plan. This shows that people don’t mind watching a few ads if it means getting the service at a lower cost.

A Deloitte study found that 60% of U.S consumers are okay with a light ad load in exchange for reduced fees. Here, a “light ad load” refers to no more than six minutes of ads per hour. By comparison, a one-hour traditional tv show contains 15-20 minutes of ads on average.

In line with this movement is HBO Max’s decision to offer an ad supported streaming subscription for $9.99 per month vs. the ad-free version at $14.99.

Streaming Advertising Options for Brands

While not all streaming services currently offer ads, brands have an excellent opportunity to capture consumer attention through OTT advertising. Advertisers can choose from multiple ad formats and streaming platforms to get their message across.

The OTT media landscape currently has two main types of advertising options:

● Ad-supported video on demand (AVOD) model – AVOD services allow users to view content for free but require them to watch ads pre-roll or in the middle of the video. Examples: Crackle, Pluto TV, and Vudu.

● Hybrid-supported model – Services that use this model offer both an ad-supported tier for free or for a lower fee and an ad-free tier at a higher cost. Examples: HBO Max, Hulu, Peacock, and CBS All Access.

Moreover, advertisers can buy diverse types of ads on OTT media services:

● Addressable TV ads – Ads displayed on the same program but containing a different, targeted messaging for each household. For example, a company may show one type of ad to viewers in Minnesota and another type to viewers in California.

● Automatic content recognition ads – Ads that allow advertisers to create tailored messaging based on the content type being watched on a particular device. For example, reality TV viewers may see a different ad from documentary fans.

● Programmatic ads – These are highly targeted ads automatically served to viewers based on their demographic information. Think of them as the automated ads served on YouTube. – Services that use this model offer both an ad-supported tier for free or for a lower fee and an ad-free tier at a higher cost. Examples: HBO Max, Hulu, Peacock, and CBS All Access.

Leveraging the OTT Advertising Space

With more streaming services leaning on ad-supported content, advertisers have the perfect opportunity to extend their reach. However, it’s also vital to size up the landscape to develop an effective advertising strategy by keeping these facts in mind:

● Streaming providers will be spending more on acquiring and retaining customers to address the major challenge of high cancellation rates

● Most people don’t mind watching a few ads in exchange for a lower streaming fee

● Brands have plenty of advertising options on OTT media services