The two titans of the video streaming wars — Netflix and Disney+ — have long resisted commercials, showing a reluctance to run premium series like “Stranger Things” or “The Mandalorian” alongside commercials selling dish soap, soda, and medicines.
“There’s no advertising on Netflix — period,” Reed Hastings, one of Netflix’s co-chief executives, said several years ago, a stance he echoed for some time. “We don’t believe that the consumer experience would be particularly good if we had ads on Disney+,” said Christine McCarthy, Disney’s chief financial officer in late 2020.
But now the streamers are starting to come around on Madison Avenue.
With the pandemic-driven wave of subscriptions showing signs of slowing down, major media and technology streaming companies are starting to get optimistic about advertising. To reach more people — including those made cost-sensitive by high inflation and subscription overload — streamers are offering a deal: exposure to ad in exchange for lower prices.
Last week, Amazon doubled down on its free ad-supported streaming service, renamed it Freevee from IMDb TV, and announced plans to expand its programming budget. HBO Max started running ads in the summer, and since January, the same number of people have subscribed to the commercial version as the ad-free version.
But the re-evaluation was even more surprising at Netflix and Disney.
“Never say never,” Netflix chief financial officer Spencer Neumann said last month about the possibility of ads appearing on Netflix. The comments, while non-committal, were enough to confuse investors and analysts who had raised warning flags about the company’s slowing subscription growth.
Disney has been even more abrupt in its change of heart. In March, the Disney company announced it would be introducing a cheaper ad tier for Disney+ this year, explaining that it would be “a building block in the company’s path to achieving its subscription goals”.
Read more about the Walt Disney Company
“When the streaming business started and prices were in the middle single digits, there was no room or need because the prices were competitive and low enough,” said JB Perrette, president of global streaming at Warner Bros. Discovery, the new parent company of HBO-Max. “But content is expensive, and as the prices for ad-free tiers have risen — in the high teen tier on some of these packages, and even Netflix is rising — it has to be paid for.”
The number of subscribers to the ad-supported services has soared. According to Insider Intelligence, a market research firm, 129 million people were using a video-on-demand advertising service at the end of last year. firm† By 2025, the company expects that figure will rise to 165 million users. Similarly, video ad revenue grew 51 percent last year to $39.5 billion, according to the Interactive Advertising Bureau, a trade organization.
“Free, ad-driven TV is no longer on the kid’s table,” said Jennifer Salke, head of Amazon Studios, which provides software to Freevee.
Some executives said the advent of advertising was inevitable as the streaming industry’s offerings increasingly match what’s been available on television for decades: a mix of broadcast, basic cable with commercials, and premium ad-free services.
“In many ways, we’re seeing the reincarnation of the last half-century of television for the streaming era,” said Mr. Perrette, the streaming manager at Warner Bros. Discovery, whose portfolio also includes Discovery+.
Some streaming platforms have been running ads for years; Hulu has had ads since 2007 and added an ad-free level in 2015. The Disney-owned company reaches nearly half of all affiliated television households in the United States, Comscore discovered last year.
“The streaming services that are essential are on a very short list, and those that are essential and ad-supported — even shorter,” said Josh Mattison, Disney Advertising vice president of operations. “You do have some thin air at the top.”
Brands have wanted to advertise on platforms like Netflix for years. Instead, Madison Avenue often settled for product placement and the occasional brand partnership.
But with Netflix’s growth slowing, many in the streaming industry say the company’s turn to advertising seems inevitable. On Tuesday, the company reported that the number of subscriptions fell by 200,000 in the first quarter of this year to 221.64 million.
“I suspect the religion they currently have about not having ads will change with time,” Jason Kilar, a former chief executive of WarnerMedia, said in this month’s podcast “The Town.” “I say that because offering consumers lower prices is a very, very good strategy.”
The idea of ads splitting ‘Bridgerton’ or ‘Severance’ may be anathema to some viewers, but to many advertisers it’s exciting.
Andrew Essex, a longtime advertising executive who heads the consulting firm GoingConcern, said the “streaming industry is maturing and becoming much more realpolitik, where they say the user experience is going to hell – we need revenue, we’ll generate additional forms of revenue.” .’
“It’s basically game on,” he added.
Many companies are trying to expand their reach beyond traditional television, where a declining number of must-watch events are drawing lower ratings and an older audience.
The financial implications mean that the presence of streaming commercials “is fantastic news for anyone in advertising, and ultimately fantastic news for the American consumer, who can’t carry 15 paid subscriptions,” said Kelly Metz, the director of advanced TV activation. at the Omnicom Media Group.
“They need ad-supported models so they can balance their bank accounts at the end of the month,” she said. “There’s a ceiling on what the American consumer can practically afford, just like we used to see with cable television.”
As more of the services have added commercials, they have become a playground for ad format experimentation. In some cases, ads are shown based on whether viewers are binge-watching or pausing shows. Hulu asks viewers if they’re willing to watch longer ads earlier in their viewing session in exchange for fewer ads later, or if they’re open to sequential posts across multiple ad breaks. The company is exploring interactive trivia-style ads that can be shown during movies.
Peacock teamed up with several major companies to promote his “Fresh Prince” adaptation, “Bel-Air,” which premiered in February. State Farm and Unilever created custom commercials featuring Jabari Banks, the show’s star, and broadcast them on NBCUniversal’s digital and linear channels.
With so many streaming options to choose from, advertisers have to play “a game of mindshare and saliency,” fighting to get viewers’ attention, said Juliana Wurzburger, Anheuser-Busch InBev’s director of paid media. This season, about 30 percent of the company’s video spending went to streaming.
“We’re definitely trying to increase that year and try to track where the consumer is,” she said.
