Now that subscription streaming is dead, are there enough ad dollars for everyone?

Here, in the early days of Upfronts, that annual exercise in self-promotion of an industry focused on self-promotion (and customer promotion), it’s a good time to ask a simple question: now that even Netflix, Disney Plus and Apple TV Plus add ad-based programming or even full service tiers, are there enough dollars for everyone?

The timing for this question is particularly sharp, with inflation pinching discretionary spending, homework and free time fading, and a potential recession looming. Oh, and the easy money that’s fueling 13 years of tech boom seems to be drying up faster than Lake Powell.

So, let’s all look at the ads!

The good news: there’s a lot of money here. The Internet Advertising Bureau, admittedly not a disinterested third party, said in its 2021 digital ad revenue roundup that digital video generated about $39.5 billion in ad revenue last year, up nearly 51 % compared to 2020 transformed by the pandemic.

This is further evidence that brands are shifting their spending plans from legacy platforms to connected TVs and other digital distribution channels. And it can’t come soon enough for all those streaming executives hoping for a truly gigantic bonus next Christmas.

But it won’t be as simple as waiting for the checks to come in.

On the one hand, media companies with legacy broadcast and cable operations are having a moment of intense reconsideration in their plans to strip those platforms of all worthwhile content as quickly as possible, and push it onto their streaming services. by subscription. It might be prudent to keep pressing these still relatively golden geese a bit longer.

It’s because we now know that we can’t rely on SVOD to attract 1 billion paying customers by, say, 2025 or so.

Netflix’s difficult first half of 2022, where it had the temerity to lose a tiny fraction of its 222 million subscribers, caused it to suddenly reconsider every one of its fundamental operating principles, from issuing a package -it-or-leave- this is a “culture” document for grumpy employees considering live-streamed reality competitions to, yes, prepare to launch an ad-supported level of here the end of the year.

Trade organization Digital Entertainment Group estimated on Monday that subscription streaming in the first quarter was up 17% year-over-year, “while direct-to-consumer services including AMC Plus, Disney Plus, HBO Max , Paramount Plus, Peacock and others, continued to add subscribers at a healthy pace.

Healthy is good. But subscriptions can be so complicated, with no long-term contracts, nearly 40% churn, and all those expensive, eye-catching originals to produce. Netflix’s stumble suggests that “healthy” is a good, not automatically achievable, goal for the industry now.

Add to that other complications.

Accenture’s “Streaming’s Next Act” report a few months ago predicted a decline in consumers’ willingness to spend on video, exacerbated by poorly constructed bundles, difficult-to-navigate interfaces, and recommendation engines that can’t Track everything you’ve watched or find it anywhere.

And if these Accenture-defined issues are a problem among paid services, imagine what it’s like on the side of ad-supported lower rents. Customers there are already annoyed by cheaper but not free services that constantly deliver irrelevant, repetitive, and excessive ads, creating experiences that resemble the basic cable services they just cut.

It’s tempting to expect that the IAB’s $39.5 billion online video advertising pie will continue to grow at a high rate of 51% this year and beyond. But consider this peaceful sight.

First, we’re adding three terrific new players to the fray: Disney Plus, whose parent has been selling ads for over six decades around many delicious shows; Apple TV Plus, whose parent company already generates billions a year from advertising elsewhere in its vast operations and is now adding live sports; and Netflix, which has unlimited customer data and a very good interface and recommendation engine.

Oh, and for good measure, throw out Amazon. He hasn’t shown any particular interest in putting ads on Prime Video, but the e-commerce giant Is continue to purchase rights to ad-supported live sports, such as Thursday Night NFL games, which will attract many national advertising dollars. Amazon also operates one of the fastest growing AVOD platforms, Freevee.

Last year, Amazon made $31 billion in online advertising, third on Interwebz behind Alphabet/Google/YouTube and Meta/Facebook/Instagram, which also know digital video advertising.

And there’s all this economic mess eroding away, which could affect not just how many SVOD channels we pay for, but also how much brands will spend on advertising in the months to come. We’re still in a bit of an economic free fall, so it’s too early to tell where that’s headed, but it doesn’t look promising for optimists.

So there you are, a second-tier streaming service that brings a nice change from your FAST/AVOD operations and Goldilocks-style ad-subsidized subscription tier. What are your real chances of continuing to see these revenues grow?

Ad-supported services promise a substantial overall market opportunity. But it won’t be an ever-growing opportunity. For now, growth is likely to be considerably more modest for some time.

This means that Hollywood companies will have to pursue a rigorous process of triangulation to thrive in this suddenly very complex new ecosystem:

> They will need to preserve their legacy outlets, milking shows there to generate revenue for as long as possible.

> They will have to continue to develop (and above all improve!) their subscription services. That means spending on separate programming, but also improving those buggy and unreliable interfaces.

> And finally, they will have to widen the pie, both of viewers and revenue, with ad-based digital services. They will also need to more effectively turn those ad-supported outlets into more effective downstream distribution windows for all the expensive content they still produce.

All of this will happen just when the ad-based watering hole is about to get a ground more crowded. I hope everyone has figured out how to drink enough.

About Ricardo Schulte

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