Broadcasters won’t ditch ads as they bid for streaming dominance

As BBC and ITV’s new boxset platform Britbox is released in Beta, competition in the subscription video streaming market is hotting up. Apple TV+, which launches in November, and Disney+, which is expected to launch next year, will join the likes of Netflix, Amazon Prime, and NowTV in the subscription streaming space. 

With all of these platforms currently ad free, it might appear the industry is moving away from ad-funded broadcasting, but this is far from the case. Annual TV ad revenues in the UK still exceed £5 billion and ad-supported broadcaster streaming platforms such as ITV Hub, All4 and My5 remain popular. As new subscription streaming platforms emerge, competition will increase and prices will come down, meaning subscription-only models will not be sustainable. Advertising will become as central a feature of video streaming as it is of linear TV.

If we look to the US, broadcasters and video platforms that traditionally rely on subscription video on-demand (SVOD) are diversifying revenue models and embracing ad-funded services (AVOD). Amazon launched a free AVOD service called IMDb Freedive in January and Fubo TV just launched the Fubo Sports Network, a live free-to air consumer network funded by advertising. At the same time NBCUniversal is developing an ad-funded service which will be released next year.

Many providers are looking to combine SVOD and AVOD options, with WarnerMedia considering a lower cost package with some ads as an alternative to its standard plan when it launches in 2020. In fact, Hulu recently revealed 70% of its users are on the ad-supported plan, which costs significantly less than the ad-free package.

While the US TV and video market is markedly different to the UK and Europe, streaming services on this side of the Atlantic are likely to follow a similar path and explore a variety of revenue models including both subscription and advertising. For instance, Premier Sports just launched LaLigaTV, a subscription-only service dedicated to Spain’s LaLiga. Despite having this service, Premier Sports will still broadcast highlights and one live match per round on its FreeSports channel, which is free to stream and is funded by advertising.

Demand for ad inventory on streaming platforms is high. Brands want to advertise in premium, brand safe environments around professionally produced, high quality video. As linear TV and digital video converge, advertisers want to reach audiences wherever, whenever and however they choose to consume content. Via streaming platforms, they can engage attentive viewers that are fully immersed in programmes they have specifically chosen to watch, at a time that suits them.

Streaming platforms can offer viewers innovative features, such as the opportunity to choose different camera angles during live sports events, which increase audience engagement and make associated ad inventory more attractive. With brands willing to pay a premium to advertise on streaming platforms, and ongoing demand for free-to-consumer content, broadcasters and video platforms have to consider advertising as a valuable revenue stream.

There is an expectation across the industry that even Netflix will eventually introduce advertising to sustain its investment in content, especially as the growth of its subscriber base is slowing. At present the platform says it has no plans to implement advertising, but users aren’t necessarily against the concept. A recent study reveals less than a quarterof Netflix customers would stop their Netflix subscription if the platform added advertising and kept prices the same. Only 12% would do so if advertising was introduced and the subscription price was cut by $3. These figures indicate tiered price plans with a combination of advertising and subscription could be well received by Netflix customers.

To make the most of the video streaming opportunity, broadcasters and video platforms need dynamic, holistic monetisation strategies that combine advertising, subscription, transaction and other potential models rather than relying solely on one form of revenue generation. They can leverage technologies that enable them to combine data about the value produced by various types of video content and evaluate the profitability and practicality of diverse monetisation models. These technologies calculate the specific value each model offers across every viewing windowand can predict the revenues that different options will generate, allowing broadcasters to make smarter, more fluid decisions around monetisation.

While there is currently a surge in ad-free, subscription-only streaming platforms, this doesn’t mean broadcasters will ditch ads. Relying solely on subscription is unsustainable and, with high demand for premium video inventory, advertising presents a viable and highly profitable revenue stream. There is no one-size-fits-all solution to video monetisation but by being more flexible, broadcasters and video platforms can effectively combine advertising, subscription and other monetisation models to make the most of their inventory and generate steady revenues in the long term.

Thomas Bremond is general manager, international, FreeWheel