Why Ads Are Good for Streaming

This may be a bit controversial to say, but I believe that ads are a necessary part of the TV experience. First, let’s keep this in mind: Whether you are Stream or watch via OTA or through your cable providerIt’s all TV. Since the mid-1950s, when the installed base of televisions reached a critical mass in American homes, the television business model has not relied on selling hardware. It is based on selling advertising.

But advertising revenue is not limited to network owners only. It is also shared with the content owner. Therefore, better content is placed by networks in prime times, when more viewers are watching (According to Nielsen), generates greater advertising revenue. So the quality of the content is directly related to the value of the ad. If logic prevails, studios will be willing to invest more money in content development if the result is better quality content that generates higher advertising revenues.

Only the current streaming business model seems to deviate from this. At least in the beginning, it was It’s all about subscriptions. But this model eventually has a ceiling unless you maintain it Raising subscription prices Which, unfortunately, can turn off a large swath of consumers in a market with a lot of subscription services. Many streaming services are starting to include an “ad-based” tier where they can capture some ad revenue while lowering the cost of subscription. And it works. According to A Parkes and associates study57% of subscribers to the eight major streaming services choose an ad-supported subscription.

So let’s go back to the first sentence of this column and add some power to it: I believe all streaming services should be, first and foremost, ad-based. The focus should not be on “how many subscribers can we get” but rather on “how many ad views can we get”. This means that the ad-free tier (and there’s probably no such thing) is not just a few bucks a month, but perhaps double, or even triple, that. Why? Because by focusing on those advertising dollars, streaming services will have more capital to create more high-quality content.

Remember, in the days of broadcast television, the network (such as NBC) owned the ad slots and licensed the content. Now the streaming service is the studio and the network. They have complete control of all advertising dollars. In this environment, they can use data to determine which shows attract viewership and the minimum advertisers will be willing to pay for slots.

This can help Specialized content. Let’s say you have a show that attracts 300,000 subscribers (which is less than 1% of Netflix’s total subscribers). If the ad dollars for this show work out, it could be a break-even show. Remember, streaming services don’t have the time restrictions of linear TV. So there are an infinite number of time periods available. It’s all about when the audience wants to watch it. This niche offering can continue to exist even if it does not generate significant revenues as long as the cost of producing, supporting and delivering it is supported by advertising.

We are beginning to see this in action. like Jan Ozer He writes in a new article called The new face of speedFAST services like Tubi and Roku are investing heavily in original content. Why? Because they realize that ad revenue can support new content that attracts more viewers and more advertisers.

The streaming business model must change. Services that rely solely on subscriptions will plateau. They will have to constantly return to their subscriber base and “milk” them for additional revenue through increased fees. But by deciding and embracing advertising as a key part of creating and supporting high-quality TV programming, streaming services will meet their viewers’ ultimate need: to see the content they want.

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