Consumers ditched cable so they didn’t have to see commercials. Now, the adverts they hoped to escape are returning to streaming media. How did we get here?
When streaming services first emerged, they enticed users by eliminating the ad experience. Numerous viewers abandoned traditional television in favor of platforms like Netflix, seeking uninterrupted program viewing. This not only revolutionized the media industry but also provided consumers with an entirely novel, on-demand entertainment experience.
Presently, in a bid to enhance revenue, streaming companies are introducing advertisements into their offerings. In a recent announcement in late September, Amazon revealed plans to incorporate ads into its Prime Video service across at least 10 global markets by 2024, aligning itself with numerous other streaming platforms that have already taken this strategic step.
This shift puts streaming consumers back to where they started, contending with commercial breaks they initially sought to avoid. Moreover, many find themselves subscribed to multiple streaming services, collectively priced to rival traditional cable TV packages.
Anthony Palomba, a professor at the University of Virginia Darden School of Business in the US, explains that this transition is a response to the significant debt burdens faced by many streaming services. These financial challenges stem from substantial investments in content, licensing fees, and other expenses aimed at expanding libraries and competing in the market. Seeking a return on these investments, streaming companies are passing the cost on to subscribers.
Netflix is a streaming entertainment platform introducing adverts into their content
As an illustration, NBCUniversal’s Peacock experienced noteworthy growth, adding 4 million subscribers in the last quarter, bringing the total to 28 million – an 80% year-over-year increase. This subscriber surge occurred even as the company introduced charges for the previously free ad-supported tier and raised prices for ad-free options. The shifting landscape of streaming services reflects the industry’s pursuit of financial stability amid evolving consumer preferences and economic considerations.
Other streaming services are also adopting ad-supported models and increasing subscription prices. Hulu and Disney Plus, for example, have elevated the costs of their ad-free options while maintaining the relatively profitable ad-based tiers at a steady rate. Disney+, in addition to introducing an ad-supported option, is raising the price of its ad-free tier. Notably, even Netflix, a streaming pioneer, has ventured into advertising for the first time in numerous countries around the world.
This strategic shift signifies a significant departure from their traditional business models, as these companies seek to redefine their approaches, according to Dave Simon, Head of Growth Initiatives at Moloco, a US-based machine-learning-driven advertising company. “Most of the major content companies identified an opportunity to engage directly with consumers, bypassing their typical distribution channels, such as cable operators,” he explains. “They all took a chance on building a business where subscription became the primary revenue driver.”