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How Will Streaming Services Monetize to Compete?

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Why do people pay for streaming services? An article published by The New York Times put it bluntly: “People hate ads.” Ads, in their most familiar form, are inconvenient. They break immersion. In fact, according to Magna Global, 84% of consumers will disengage from content due to interruptive advertising. Streaming services provide award-winning content with the convenience of little-to-no in-video ads. But, therein lies the streaming wars problem—how will all of these players make money?

It has been long speculated that a time would come when streaming services would overtake cable use. Since 2010, the year pay-for-cable households peaked, the number of people willing to choose cable has declined by over 20 million. Experts predict that number will fall another 10 million by 2023. It is estimated that 25 million additional homes will have cut the cord by 2025. Cable’s days are numbered, if they aren’t out already.

The major SVOD (subscription video on demand) services like Netflix, Hulu, Amazon, and HBO attract the bulk of the consumer base. These services charge a monthly fee for access to their content. The average number of streaming services for a U.S.-based customer is 4. The top 5 were Netflix, Amazon, Hulu, Disney+, and YouTube TV—leaving services like Sling, Vudu, and ESPN in the dust. As these top services compete against each other, they will begin to see a leveling out of their subscriber base or even less subscribers due to new streaming services.

In order to make a profit, smaller subscription services will start to turn to an advertising on demand (AVOD) strategy to cut costs to their users in order to stay competitive. This means that users will have to watch ads in order to view content. An example of this is YouTube or Facebook. Hulu, and HBO Max, for example, offer two subscription models—one with and one without ads at different price points for a more ethical approach that allows for additional revenue for the company.

It seems that internet-based publishers have been the only companies under the delusion they could survive with only ad-supported or subscription models and not both. The SVOD services are waking up to the fact that no content industry has ever survived on one model alone. Multiple streams of profitability is key. Magazines, newspapers, cable television and satellite radio all have both subscription and advertising models. 

While not a streaming service specifically, The New York Times deploys a subscription model, but still allows ad placements (native and display) within the articles. Typically, the site will allow the user to view 2-3 articles per month for free, but then offers a paid subscription to view all news pieces. NYTimes reported that their revenue for online subscriptions rose 33% in 2020 to $155.3 million.

As the major players begin to implement a combined AVOD and SVOD strategy, that will likely leave other streaming services to pursue a strictly AVOD strategy. Think services like Sling, Fubo TV, and Crackle that are looking for more ways to monetize their minority share of the audience; an audience that is statistically loyal enough to keep their subscription for five or more years. The best way to monetize is to force the users to watch advertisements in order to view the content. However, this is a catch-22, due to the fact that it’s already known that viewers are so put off by advertisements they are willing to pay to avoid them. 

See the problem?

In 2019, the research firm Forrester said in order to maintain any kind of relevancy, advertising agencies faced an “existential need for change.” The firm said “Agencies must disassemble what remains of their outmoded model or risk falling further into irrelevance.”

The outmoded commercial model is interruptive and intrusive, especially when based on historical data. Pre-roll or mid-roll ads are usually met with frustration from a user just trying to enjoy a video. They are typically upset about having to wait through an ad to see the video they came to view.

To take it a step further, video viewers are sometimes upset about the topic of the ads as well. Sometimes ads that show up are inappropriate for the viewer. This may cause users to turn to using ad-blockers for online streaming which takes opportunity from the publishers and advertisers. Even further still, a substantial majority of video viewers feel that the ads they are exposed to are more intrusive now than 3 years ago and are turned off by the fact that the ads are being targeted directly to them. If streaming services that are looking to monetize using traditional methods of video advertising, they risk losing their current subscribers or pushing away new ones. 

Smart AVOD strategies will help streaming services to monetize and advertisers to get results without cookies, upcharging or affecting the user-experience. One example of a smart AVOD strategy is to include advertisements that the user would be interested in - similar to how podcasts pick and choose sponsors that align with their  message and/or values. Another example is Hulu’s “Paused Ads” that only play when the user pauses the content. With this tactic, Hulu can monetize its content without interrupting its viewers. 

Twitch also has an acceptable AVOD model where streamers use paid advertising to create a break for themselves between content segments or to get a drink or go to the bathroom. All of these advertising methods are done with the intention of being unobtrusive or keeping the jarring impact of ad interruption to a minimum. 

Reaching a place where advertising can be integrated is key to keeping viewers happy - it’s the same thought-process that marketers use when they say that they want to implement an “integrated marketing” strategy. Integrated marketing is the practice of creating a customer-centric experience that spans across all marketing assets and presence. A good example of this was Coca Cola’s Share a Bottle campaign which was marketing, advertising and brand building all in one.

To put it simply, it’s about seamlessly integrating the viewing experience while still allowing for advertising to take place within the content. For advertisers, this may mean getting creative regarding where and when you’re advertising. For publishers, this means being strategic about your monetization strategy. Contextualization or aligning advertising content with the content will be key for the future of monetization for streaming services.

[Editor's note: This is a contributed article from CatapultX. Streaming Media accepts vendor bylines based solely on their value to our audience.]

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