Advertising in streaming

Lately, streaming networks have been particularly busy releasing new content, and the response has been very positive. Shows like “House of Dragons” and “Bridgerton” are keeping viewership high across various platforms. In fact, according to Netflix, users are more engaged than ever, spending over 10 hours a month on the platform, which is significantly higher than their closest competitor.

However, this surge in new content has led to a rise in subscription prices. For example, as of June 4th, HBO Max increased its subscription rates. The basic plan now costs $16.99, an increase of $1, and the yearly plan has jumped to $169.99 from $149.00. For those subscribed to HBO Max’s “Ultimate Ad-Free” plan, the monthly cost is now $20.99, up by $1, and the yearly subscription is now $209.99. Other platforms, like Twitch, are also planning price increases starting in July.

While the new content is popular, these price hikes have not been well-received, leading some users to cancel their subscriptions. In the best cases, users have just downgraded their subscription plan. To manage costs, many users are opting for plans that include advertisements. These ad-supported plans have become popular on platforms like Netflix, which now has 40 million users on its ad-supported tier. At the starting point of $6.99 (U.S territory) it presents a much more appealing offer in terms of pricing than their other alternatives without ads, more than a $10 difference per month.

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Surprisingly, these ads haven’t generated many complaints, as they are designed to be minimally intrusive and tailored to each user’s behavior (if allowed by the user). According to Netflix, such ads may be selected based on your interactions with Netflix (such as the genre of content being viewed), your general location (such as city and state), and information you provide to Netflix. This new advertising model has become a gold mine for targeted ads, facilitated since 2022 by a platform currently provided by Microsoft. However, due to this reliance on a third party, Netflix recently announced plans to develop its own advertising platform by 2025.

What does this mean for users and the platform? Evidently, it will give Netflix greater control over targeted ads and insights into customer behavior, potentially enhancing the user experience and advertising efficiency.

Most importantly, this signifies a new phase of maturity for the streaming service, aimed at maintaining profitability. The introduction of ad-supported plans is part of a broader strategy within the streaming industry. This approach allows streaming platforms to diversify their revenue streams, attract a wider audience, and reach more users. However, it also presents challenges, as some believe it makes streaming platforms more like traditional TV and linear media formats. Despite these concerns, we believe this comparison is not entirely accurate. The key is personalization and a certain degree of interactivity, such as offering a “skip ad” option once advertisements have been played for a while, an approach that traditional (linear) TV stations do not have the capability of doing, and in their streaming channels they have not yet fully embraced.

So far, the results of the advertisement campaigns have been successful, and the overall feedback from users has been positive for streaming networks. Furthermore, it is anticipated that ad targeting will become increasingly sophisticated. Already, AI systems have been trained in psychographics and neurolinguistics. With this combination, AI understands each person almost as well as a “close friend” does with the ultimate purpose to balance user experience with financial gains.

As the streaming industry evolves, it’s clear that the balance between content quality, user experience, and monetization strategies will be crucial for maintaining subscriber loyalty and attracting new users. The rise of ad-supported plans, coupled with sophisticated targeting methods, signals a significant shift in how streaming services operate.

For consumers, the benefits of lower subscription costs with minimal ad intrusion can outweigh the drawbacks, particularly if the ads are relevant and non-disruptive. This approach also democratizes access to premium content, making it more affordable for a broader audience. For the platforms themselves, the move towards developing in-house advertising capabilities, as Netflix plans to do, represents a strategic investment in their future. By controlling the advertising platform, streaming services can refine ad delivery, improve user engagement, and increase revenue without overly relying on third-party technology.

In summary, while the increase in subscription prices may cause some initial discontent, the broader strategy of integrating ad-supported models and advanced targeting is likely to enhance the overall value proposition for both users and providers. This evolution marks a new chapter in the streaming wars, where innovation and user-centric approaches will define success in an increasingly competitive market.


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