Why Ad-Supported Streaming Services Support Subscriber Growth - Industry Leaders Magazine
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Why Ad-Supported Streaming Services Support Subscriber Growth - Industry Leaders Magazine

The pandemic brought streaming services into every home screen, as people looked for interesting content to kill time during the quarantine. A transition that was expected to take a few more years was accelerated in the past two years, forcing major networks to jump on the bandwagon or figure out new ways to connect to audiences.
In July, TV watchers spent more time streaming than they did watching linear TV or cable broadcasts. The Netflix success story became a model for other aspiring streamers. According to Grand View Research, since the start of the COVID-19, subscriptions and viewership has increased across all major services, like Netflix, Amazon Prime Video, YouTube, and Disney+.
The global video streaming market size is expected to hit around $1,721.4 billion by 2030, at a CAGR of 18.45% from 2022 to 2030, as per Precedence Research data.
The term streaming broadly refers to listening to music or watching a video in real-time. One of the main reasons for the growth of streaming services is access to the Internet and use of smartphones.
In the 2010s, TV content reached its peak as it exploded with interesting content and thousands of commercials. Cable and satellite TV prices went through the roof, and people wanted a more customizable alternative that would allow them to have greater control.
Netflix hit the spot for many individuals and families, and many households canceled their monthly cable plans to switch over to streaming services. Launched in 2007, Netflix offered hundreds of movies and shows for lesser cost and allowed people to watch it at their convenience, without any advertisements.
While cable and satellite prices ranged between $50 and $100 per month, Netflix charged just $8.99 for its subscription plans.
Streaming services added millions of subscribers in the first three months of 2020. Stuck in quarantine, these services helped kill boredom and brought entertainment to every screen. Netflix added around 15 million subscribers, while new entrant Disney+ onboarded around 22 million subscribers in the early months of the lockdown.
As streaming services grew, its reach did not escape the attention of major media companies like HBO, Paramount, and Discovery. These companies launched their standalone online streaming packages with separate fees. Although increased competition means there is always fresh content, it also escalated entertainment prices for individuals and households. HBO launched HBO+, Paramount introduced Paramount+ while Discovery created Discovery+ as the race to create and launch new content picked up steam.
The rise of online streaming by entertainment networks worried people that consolidated media companies like Netflix and Hulu might not be able to license trending shows from these networks.
During the first quarter of 2022, streaming services were jolted by declining growth prospects as they failed to hit expected numbers. Netflix lost almost 200,000 subscribers in the first quarter and almost a million in the second quarter.
Challenging economic conditions were blamed for the decline and the growth of other streaming subscriptions. Competition was fierce and streaming companies were losing subscribers and money to content-conscious customers.
The unsustainable content wars by streaming platforms reached a peak as households stretched thin by record high inflation cut back their on entertainment services to keep their head above water. Meanwhile, investors worried that online streaming services had peaked during the pandemic, and will slowly decline.
The new trend, used by Disney+ and Amazon’s Prime Video, is to release episodes of hit shows weekly, to extend the life of content and stop subscribers canceling after binging on their favorites. Netflix, too, has jumped on the bandwagon to dissuade binge-watchers from canceling subscriptions after watching big-ticket items. It has become the norm to release content in a controlled manner, much like cable TV, to keep subscribers on the hook.
“The market has got an awful lot more crowded over the past few years and it is not going to support many more services at this stage,” said Richard Broughton, an analyst at Ampere. “Consumers now have more services than they could possibly need.”
Content fatigue combined with reduced purchasing power left people feeling overwhelmed and unable to afford the plethora of services available. Nielsen’s State of Play report showed that consumers now have over 817,000 unique program titles as of February 2022 vs more than 646,000 as recently as December 2019. The increase in content also comes with an increase in consumption, as 18% of Americans are now paying for four streaming services vs the 7% who did so in 2019.
Customers have also become selective of the kind of content they want to consume and pay for. Kantar found that a fifth of German consumers who took out a new subscription video-on-demand service in the final three months last year canceled one of their existing ones as a result.
Planned cancellation went up exponentially when people had over three online streaming services under their belt. But lately the numbers have started moving up and look encouraging.
In its study released in July 2022, Kantar discovered that the proportion of US households with video streaming services has grown to 88%, up by nearly 2% points quarter-on-quarter.
“Everyone has started to feel the heat,” Dominic Sunnebo of research group Kantar told The Guardian. “As well as a wave of new well-funded subscription services, there is also now an acceleration of advertising-funded low- or even no-cost. The Netflixes are suddenly not so cheap anymore.”
In markets with huge potential, such as India, consumers are not able or willing to pay much for streaming services, which means price competition is fierce, and subscriber growth brings much smaller revenue increases. The only way to build growth and revenue is to launch streaming services with ad-supported tiers.
Netflix introduced ad-supported streaming on its service on November 3, as part of a bid to attract more customers with a lower-cost subscription. The advertising-supported tier, priced at $6.99 a month in the United States, will show subscribers four to five minutes of ads per hour of content they watch. Its other plans range from $8.99 to $17.99 per month. Hulu, one of the cheapest streaming options at $5.99 a month, already has commercials in place. For a break from constant advertising, users can pay $11.99 per month to avoid commercials.
On the cheaper side, both Discovery+ and Paramount+ are $4.99 per month, and university students are eligible for discounts at many streaming services. 
Consumers are adjusting their consuming habits for inflation and tighter budgets. All the signs point towards a rise in ad-supported streaming services as companies must balance revenues with subscriber growth.
According to Hub Entertainment Research (HUB), nearly 55% of customers use at least one free ad-supported streaming TV service (FAST). The 2022 CTV/OTT survey conducted by Advertiser Perceptions also found that advertisers are keeping money aside for CTV (connected –TV) advertising.
For marketers, streaming services with ad-supported tiers have opened up new avenues and audiences, that will enhance both brand-building and performance marketing. Both digital and mobile marketers have turned to CTV for effective targeting, as they leverage behavioral targeting capabilities for a new audience.
Marketers have had to rework age old marketing strategies with demographic and contextual targeting to reach precise in-market audiences. New data-driven capabilities give advertisers the agility to swap out creatives for different audiences in different markets in their CTV campaigns.
Ad-supported streaming services are a match made in marketing heaven as consumers are willing to put up with a few ads, if they can get a respite in pricing. 
But not everyone is happy with streaming services with ad-supported tiers. In an interview with CNBC, Liberty Media Chairman John Malone expressed doubts over the sustainability of this model. “I’m a little skeptical as to how many people do save a few bucks or are going to be willing to tolerate ads in what I would call long-form entertainment programming,” Malone told CNBC’s David Faber. 
While Netflix launched its ad-supported services in November, Disney+ is set to introduce them next month. Malone believes that spending “a fortune in advertising and on customers” will kill streaming services. He also acknowledged that sports programming can be a tricky affair and companies might have to experiment and learn, before figuring out a methodology that sticks.
According to Malone, streaming services should focus on moving subscribers up from low-priced models to high-priced ones for better revenues. 
Ad-supported models can help companies achieve this target as those who do not have budgetary constraints and wish for ad-free content can avail of the more expensive options. Having ad-free models means not losing customers for streaming services, as competition is harsh and investor pressure is mounting.
Hub Entertainment Research’s survey in 2021 found that more than the number of ads in long-form programming, what matters to customers is how ads are delivered. The survey also found that once the number of ads in a 30-minute period reaches six, customers feel the load and find the numbers unreasonable. Around half the customers surveyed also noted that a 30-second break was reasonable but anything more than that was not okay. Perceived unreasonableness for this climbed from 33%to 41% for 90 seconds or more. It appears that the key to winning customers is to input a reasonable number of ads and moderate their delivery. 
As inflation squeezes household budgets, streaming services have had to accommodate the very thing they abhorred so that both their clients and teams can co-exist in an unstable economy.
Cloud Wards found that in 2021, 85% of households had a video streaming subscription compared to 67% with a paid TV subscription.
Joey Randazzo, Audio/Visual Technical Manager at Franklin and Marshall College told WITF that online streaming is also changing the way people approach movies and theater-going experiences. “Maybe you don’t have to pay $100 to take your family out to see Downton Abbey the movie, wait a few weeks and see it at home,” he says. However, watching certain movies in a theater along with other fans is an experience you can’t replicate at home. So, you might go for “the next big Marvel free for all or Top Gun 2, it’s a treat and you definitely should experience some of that spectacle on the big screen.”
The State of Play report released by Nielsen, an American data and market measurement firm, found that weekly time streaming video has increased by about 18%, with a year-over-year increase from 143.2 billion streamed minutes to 169.4 billion between February 2021 and February 2022. The report also pointed out that streaming services are set to grow with 93% of Americans admitting that they will either increase their paid streaming services or continue current plans over the next year.
The consumer analysis by Kantar’s Entertainment on Demand (EoD) streaming analytics and consulting service found promising trends in its July 2022 report. Growth in US streaming is coming from all streaming tiers. SVoD (paid streaming without ads) is up 1.5% points to 82.9%, while AVoD (paid ad-supported streaming) grew by 1.6% points to 26.9% household penetration. FAST (free, ad supported streaming) grew by 2.1% points to 22.3%.
Streaming services are set to add more customers in the next quarter and ad-supported models have been a godsend in this economy. However, striking a balance is of utmost importance as an incessant attack of advertisements will make customers subscribe to the next-best option as there is no dearth of competition or content.

Streaming services are usually cheaper than paid cable TV subscriptions, and also allow you to watch content at your convenience.

Binge-watching streaming services can lead to social isolation, lack of interest in other areas, fatigue, and other problems.
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