After investing considerable resources to acquire streaming subscribers over the years, media companies are now seeking to generate profits. To achieve this, they are increasingly relying on advertising as a viable solution.
The recent annual Upfronts, where media companies like Fox Corp., Warner Bros. Discovery, Disney, and Comcast's NBCUniversal present their proposals to advertisers, serve as evidence of this trend. Seth MacFarlane's iconic zany teddy bear Ted made an appearance in an animated short that NBCUniversal used to kick off its event.
The video was created in reaction to the ongoing Hollywood writers' strike and the dearth of talent.
Ted entertained the audience by doing a song and dance performance that highlighted the importance of advertisements. On the organization's Peacock streaming service, Ted has a series.
We need commercials, the cartoon bear chanted. To believe that the streamers were anything more than passing trends, we were all daydreamers. We're all begging for commercials right now.
The drive for advertising revenue arises not only due to the slowdown in subscriber growth and customer churn in the media industry but also as a response to a soft advertising market that has been slow to recover. During Disney's recent earnings call, CEO Bob Iger highlighted the significance of ad-supported streaming. Paramount Global and NBCUniversal have also emphasized their more affordable ad-supported tiers since their inception.
Warner Bros. Discovery has introduced similar options for consumers. Despite the current challenges in the overall market, Iger expressed great enthusiasm about the advertising potential of their combined platform.
This sentiment followed the announcement that Hulu content would join Disney+, a move that would benefit advertisers. Even Netflix, which had staunchly opposed advertising for years, has now entered the realm.
The streaming giant, the dominant player in the industry, recently held a virtual presentation for advertisers, unveiling details about its ad-supported tier. The announcement had a positive impact on its stock value.
However, it is still early in the process, and it remains uncertain whether advertising will effectively compensate for the fluctuations in streaming subscriber growth.
Customers choosing to subscribe to ad-supported streaming services has significantly increased. According to data firm Antenna, the number of such subscriptions in the United States increased by about 25% in the first quarter of this year compared to the same period last year, hitting 55.2 million from 44.3 million.
An alternative approach to generate revenue for streaming businesses is through the utilization of free, ad-supported, or FAST (Free Ad-supported Streaming Television) channels.
The classic TV business and this new streaming approach are comparable. While FAST channels mirror cable-TV networks, cheaper ad-supported streaming tiers resemble broadcast TV. The premium, ad-free alternatives, however, are equivalent to HBO and Showtime.
Bill Rouhana, CEO of Chicken Soup for the Soul Entertainment, which owns ad-supported streaming services like Crackle and Redbox, sees FAST as a replacement for the old syndication business. He believes there are multiple avenues to monetize television.
Free streaming services that offer a combination of on-demand content and curated channels have experienced explosive growth in recent years. Companies like Fox and Paramount made acquisitions of Tubi and Pluto, respectively, just before the surge in viewership. These deals became notable accomplishments highlighted in the companies' earnings reports.
For larger media companies, these free streaming services have also become a platform to showcase their own content libraries. For example, Pluto streams earlier episodes of the successful series "Yellowstone," which has generated additional spinoffs and has contributed to the growth of Paramount+.
Adam Lewinson, Tubi's chief content officer, observes a significant shift in the past year. He points out that the challenges of the subscription streaming model, coupled with subscription fatigue, have prompted people to scrutinize their spending more closely, particularly during tougher economic times. Additionally, nearly one in three streamers are reducing their spending on streaming services.
For Fox, which primarily focuses on sports and news on traditional TV channels, Tubi serves as its streaming solution. During Fox's Upfront presentation, CEO Lachlan Murdoch highlighted Tubi's importance. Executives applauded Tubi for making Nielsen's streaming gauge report for the first time.
Similarly, Paramount has emphasized the growth of Pluto. David Lawenda, Paramount's chief digital advertising officer, mentioned that Pluto played a significant role in conversations with advertisers during the company's Upfront dinners.
Warner Bros. Discovery has plans to launch its own FAST channels. In the interim, they have withdrawn content from HBO Max and licensed it to Tubi and Roku.
Bill Rouhana, from Chicken Soup for the Soul Entertainment, suggests that syndicating content through FAST channels can be a wise strategic move. In a world where subscriber churn is a reality, having the ability to reintroduce lost subscribers to content while generating revenue can prove beneficial.
Companies are also increasing streaming fees to make up for losses. During Disney's most recent earnings call, Bob Iger stated that the company's intended road to profitability involves a combination of pricing hikes and advertising revenue. There is space for development in ad-free streaming choices, according to executives from Warner Bros. Discovery, Paramount, and Disney.
Iger mentioned that while the company doesn't intend to raise prices for ad-supported customers, those who pay for content without commercials can expect an increase later this year. The aim is to optimize the pricing model to reward loyalty, reduce churn, increase subscriber revenue for the premium ad-free tier, and drive growth among subscribers who opt for the lower-cost ad-supported option.
In the past year, HBO Max, Disney, and Paramount have all increased the cost of their streaming services, despite the fact that consumers are struggling with the inflation of basic products.
Jonathan Miller from Integrated Media suggests that simply raising subscription prices may not be sustainable given the nature of the macro economy. He believes that finding the right combination of strategies will optimize the streaming business.
"We need ads."
Ad-supported plans continued to gain popularity in 2018, with signups for these tiers accounting for 32% of all subscriptions in 2022, up from 18% in 2020.
Netflix's announcement of losing subscribers last year caused a ripple effect in the streaming industry, impacting stock prices and prompting executives to explore alternative revenue streams. Consequently, Netflix introduced a more affordable, ad-supported tier by the end of the year. Competitor Disney+ followed suit. Media companies are revisiting their traditional business models, which relied on diverse revenue streams from content rather than solely depending on subscription-based models.
Netflix, acknowledging that it is still in the early stages, revealed that its cheaper, ad-supported option has attracted 5 million monthly active users.
Additionally, 25% of its new subscribers are opting for this ad-supported tier in regions where it is available. Media businesses are debating whether subscriptions on the ad-tier can make up for other losses, though.
The complete answer to this question remains uncertain. Jonathan Miller, former Hulu board member and current CEO of Integrated Media, specializing in digital media investments, stated, "I don't think we know that answer fully yet. But I think we'll learn that a customer who subscribes without ads and remains loyal will be the most valuable. Over time, as the market stabilizes, we will gain more insights." Disney, the main owner of Hulu, has the most ad-supported subscribers, followed by Peacock, Paramount+, and Warner Bros.
Discovery, which will shortly combine Max and Discovery+. Disney also has the most paid subscriptions overall, according to Antenna. According to the statistics agency, Hulu and Peacock are the two streaming services with the highest percentage of customers on ad-supported packages.
FAST lane
The classic TV business and this new streaming approach are comparable. While FAST channels mirror cable-TV networks, cheaper ad-supported streaming tiers resemble broadcast TV. The premium, ad-free alternatives, however, are equivalent to HBO and Showtime.
Bill Rouhana, CEO of Chicken Soup for the Soul Entertainment, which owns ad-supported streaming services like Crackle and Redbox, sees FAST as a replacement for the old syndication business. He believes there are multiple avenues to monetize television.
Free streaming services that offer a combination of on-demand content and curated channels have experienced explosive growth in recent years. Companies like Fox and Paramount made acquisitions of Tubi and Pluto, respectively, just before the surge in viewership. These deals became notable accomplishments highlighted in the companies' earnings reports.
For larger media companies, these free streaming services have also become a platform to showcase their own content libraries. For example, Pluto streams earlier episodes of the successful series "Yellowstone," which has generated additional spinoffs and has contributed to the growth of Paramount+.
Adam Lewinson, Tubi's chief content officer, observes a significant shift in the past year. He points out that the challenges of the subscription streaming model, coupled with subscription fatigue, have prompted people to scrutinize their spending more closely, particularly during tougher economic times. Additionally, nearly one in three streamers are reducing their spending on streaming services.
For Fox, which primarily focuses on sports and news on traditional TV channels, Tubi serves as its streaming solution. During Fox's Upfront presentation, CEO Lachlan Murdoch highlighted Tubi's importance. Executives applauded Tubi for making Nielsen's streaming gauge report for the first time.
Similarly, Paramount has emphasized the growth of Pluto. David Lawenda, Paramount's chief digital advertising officer, mentioned that Pluto played a significant role in conversations with advertisers during the company's Upfront dinners.
Warner Bros. Discovery has plans to launch its own FAST channels. In the interim, they have withdrawn content from HBO Max and licensed it to Tubi and Roku.
Bill Rouhana, from Chicken Soup for the Soul Entertainment, suggests that syndicating content through FAST channels can be a wise strategic move. In a world where subscriber churn is a reality, having the ability to reintroduce lost subscribers to content while generating revenue can prove beneficial.
Price check
Iger mentioned that while the company doesn't intend to raise prices for ad-supported customers, those who pay for content without commercials can expect an increase later this year. The aim is to optimize the pricing model to reward loyalty, reduce churn, increase subscriber revenue for the premium ad-free tier, and drive growth among subscribers who opt for the lower-cost ad-supported option.
In the past year, HBO Max, Disney, and Paramount have all increased the cost of their streaming services, despite the fact that consumers are struggling with the inflation of basic products.
Jonathan Miller from Integrated Media suggests that simply raising subscription prices may not be sustainable given the nature of the macro economy. He believes that finding the right combination of strategies will optimize the streaming business.
0 Comments