As the streaming market becomes more crowded and audiences flit between services, we will likely see combinations of both subscription and ad-supported models, says Ariff Sidi of Verizon Media.
Ariff Sidi is General Manager and Chief Product Officer, Media Platform, Verizon Media.
The global growth of Subscription Video on Demand (SVOD) services has transformed the media and entertainment market by providing consumers with premium programming with flexible subscriptions at a fraction of the cost of traditional pay-TV plans. Netflix was an early SVOD service provider and successfully used the model to become one of the most recognised media brands in the world, growing to over 160m subscribers worldwide and deeply embedding itself in popular culture. Many are trying to replicate and challenge Netflix’s success, from major players like Apple, Amazon, and Disney to regional players like iflix in APAC.
Despite global SVOD subscriptions being expected to grow by 519m between 2019 and 2025, consumers experience subscription fatigue and feel both frustrated and overwhelmed by the number of streaming services available. The reality is that despite having more time to watch content, consumers have a limited amount of money to spend on streaming services and are showing a reticence to spend more than $20 a month on subscriptions.
New services face an uphill battle if they want consumers to add yet another exclusively paid-for subscription service or replace one they already know and love. Providers must consider multiple avenues to reach consumers and monetise content. For example, SVOD market saturation and subscription fatigue have provided fertile ground for advertising-supported video streaming businesses, like Pluto TV and Tubi, to flourish. There is also an opportunity for providers to think about their offering in a more fluid and less binary way.
As the streaming market becomes more crowded and audiences flit between services, we will likely see combinations of both subscription and ad-supported models as providers work to maximise both reach and revenues. These hybrid models will be particularly attractive to consumers who desire flexibility and control over how much they spend on a streaming service and the number of ads they see.
Most subscription services attract new users with limited-time free trials, but there is always the risk that the users will unsubscribe once the trial period has ended. One of the benefits of providing an ad-supported option is that providers can reduce new customer cancellations. By offering ad-supported plans, streaming providers can switch their monetisation over to an indirect solution supported by advertising.
Although consumers don’t have a monthly bill to worry about, providers still need to consider how to best increase consumer engagement. Offering consumers the capability to opt-out of advertising for a fee then provides consumers with greater pricing flexibility. This model has been successful in the music industry, where Spotify’s paid subscriptions make up almost 50% of its account base. Similarly, Hulu also operates with a hybrid model and has grown to become a leading digital MVPD.
Additionally, providing an ad-supported or hybrid model can help reduce churn by offering consumers an option to switch to a less costly plan instead of entirely cancelling a subscription. Consumers often subscribe to a service to access content that is exclusive to that platform. They then take advantage of the flexibility offered by many services to binge-watch and then unsubscribe. By offering viewers an ad-based subscription as part of the service’s customer retention processes, churn reduction is possible.
To maximise ad-supported services’ success, streaming providers will want to incorporate the most innovative advertising technologies into their video workflows. Premium OTT content is highly attractive to advertisers because of the engaged, addressable audiences especially on connected TV (CTV) platforms. Streaming providers need the tools to ensure that both advertisers can reach their desired audience, and viewers are receiving personalised, relevant ads.
The streaming market has become crowded and competitive, and some services will realise they cannot solely rely on one form of monetisation if they want to be successful. The companies that will be the most successful will be the ones that adapt most quickly to customer demands by providing flexibility while simultaneously diversifying their revenue mix, increasing reach, and mitigating the risks inherent to any one business model.
Ariff Sidi is General Manager and Chief Product Officer, Media Platform, Verizon Media.
