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Ad-Supported Streaming Will Benefit Everyone

Content Insider #849 – Message Precision

By Andy Marken – andy@markencom.com

                                                         Source – Mandaley Entertainment

Oh, you got a letter? I got run over! Helen gets her hair chopped off, Julie gets a body in her trunk, and you get a letter? That’s balanced! “– Barry, “I Know What You Did Last Summer,” Mandalay Entertainment, 1997

We learned long ago that the best way to have peace in the home is for us to make the big decisions while the wife makes the small decisions.

We keep elephants out of the backyard, decide what we’ll wear to the gym every morning (she’s never up at that hour) and decide how many hours a day we’ll work (she says the more the merrier) and well, that’s about it.

She, in turn, decides when/where we go on vacation (she does “ask”), what she’s going to have for dinner (she’s a carnivore, we’re not) and what is on our big screen TV in the evening.

But the other evening she gave us the control and said “we” could watch the movie we wanted to see – we havetotally different genre interests.  

About halfway through the film, she asked aren’t there weren’t any commercials because she wanted to go to the bathroom and brush her teeth.

Since we had made a bad choice – good actors, dumb plot, ridiculous over-the-top action/violence – she didn’t mind missing some of the “action.”

For years, we watched stuff on our cable bundle which meant eighteen minutes of ads per hour, plenty of time to take care of necessities.

As she left the room, we thought of all the mediocre ads we had been missing out on. 

When we first switched to streaming … no ads.

Too Good – Any “normal” person realized that the initial prices were a great deal and perhaps too good to be true.  Along the way, studios/streamers found it difficult to cover their expenses and produce a decent profit so, they did what they had to do … raised prices.  Even though the majority are still not making a profit, they’re in better shape and they can see things getting better and maybe even profitable.  

It was great … at first.

Three, four and the total is still way less than your $100+ bundle TV bill.

Everyone but Netflix was burning cash and they just reported great results – nearly 250M subscribers worldwide.  They have perfected the use of subscriber data to develop/acquire content that appeals to people everywhere.

The only others who know their subscribers as well – if not better – are AppleTV+ and Amazon Prime Video.

Apple knows how to monetize its active base of 2B devices with subscriptions, streaming, warranties, payment services and other products.  While they may not have one of the bigger libraries in the marketplace, they have consistently picked projects that attract/appeal to subscribers like Coda, Slow Horses, For All Mankind, The Morning Show, Silo, Ted Lasso, as well as upcoming projects like Constellation, Murderbots and Dark Matter.

Amazon Prime Video is (should be) profitable with about 303M global subscribers but then, it has invested heavily in shows like Reacher, Halo, Gen V, Warhorse One, Everything Everywhere All at Once and others as well as Thursday Night Football, Tennis and Coach Prime, with more sports on their wish list.

But the rest of the studio, network streamers were just inching toward profitability but then everyone realized their content was so special and so unique that people wouldn’t mind paying them “just a little” more.

Budget Bind – Individually, the higher subscription rates aren’t an issue for households; but when you have 5-7 streaming services, you suddenly find the home entertainment costs are as much as your old pay TV bundle which you got rid of because it was more than you wanted to pay.  At the same time, it also became more difficult to find the show/movie you wanted to watch while going from service to service.  

Suddenly, the home entertainment budget was rising and your frustration in being unable to find a film/show you wanted to watch became a royal pain.  

The idea that they would shift and offer bundles – at a higher cost – didn’t work because the Max bundle was everything in WBD’s house and the Disney bundle was all the stuff the mouse house owned.

Their rationale was that because of last year’s strike settlements, they had to pay writers, directors, actors (and soon the other trades) more, lots more.  

Of course, looking at the bosses’ salaries, no one bought that rational because in the past couple of years, they had been rigorously thinning the payroll.

Bummer – Getting the most money you possibly can from millions of consumers sounded like a great idea/business proposition. But somehow, consumers didn’t understand that each services’ content was more valuable than the other guy’s so folks kept jumping from service to service.  

Funny, the board of directors and yes, folks on the management team thought it was a great idea.

But in listening to their subscribers (weird how seldom that is done) they discovered most consumers were interested in saving money and if watching some ads had a positive impact on their home entertainment budget, they would do it but streamers and marketers had to be a little more considerate of the viewer.  

Receptive Audience – While almost everyone says they hate ads, the truth is they are receptive when the ads are short, less frequent, interesting and–they mean you pay less for your home entertainment.  

You know, ads that were relevant, interesting and short.

No But – Even self-described ad haters don’t mind “a few ads” when they are also able to pay less for their entertainment.  

Even folks who say they can’t tolerate – hate – ads admit that it’s really the content that matters and that they will tolerate ads that are thoughtful of the viewer.

Churn – signing up for a streaming service, binging your content and then bailing for another service – has been a problem since the beginning.

Costly Cycle – Streaming services have quickly found it costs more to replace a subscriber than to offer them a lower-priced viewing option so they don’t have to focus on signing up replacements.  In other words, churn costs money.

Replacing a subscriber costs more than keeping an existing subscriber and services don’t grow when there’s a revolving door of customers (households) in and out.

According to Antenna, the churn rate has increased steadily to the point where it is now six plus percent.

Doug Turner, former chief strategy officer at Turner Broadcasting, once said it takes five to ten months for a streaming service to break even with a new customer and it costs them about $50 to acquire that subscriber.

Churn costs the streamers millions every year, but even worse was password sharing.

Netflix co-founder and board chairman used often told Wall Street that in addition to regular subscribers the company also had 100M password users somewhat justifying the addition as a marketing cost but also to show the strength and global reach of the service.

Ted Sarandos, co-CEO, last year announced the company was going to cut off sharing and add another subscription tier – light advertising-supported service at $6.99 with about four minutes of ads per hour compared to 18+ minutes of ads per hour with pay TV.

Wall Street experts said households would flee in droves (yes, the other streamers had their fingers crossed) but during CES, they reported 23M ad tier subscribers out of a total services subscription base of about 280M worldwide.  

They still have work to do in reducing password sharing to zero (a wished-for target), but they’re in a better position than the rest of the industry.

Unwanted Expense – Sharing streaming service passwords may seem like a nice thing to do for friends and neighbors but it also adds up to significant lost revenues for the services.  Netflix led the move to clamp down on password sharing and you can be certain the others will follow.  

The other big “overhead” cost is piracy.

People watched shows/films from pirate platforms siphoning off more than $113B plus.  According to Parks Associates, fraudulent ads and malware cost streamers and consumers about $700B.

This is an area nearly everyone agrees on – except pirates – Gen AI could be a valuable assistant!

Ad-supported streaming will ramp up slowly this year because:

  •  Streamers aren’t just competing for ad dollars normally going to pay TV but all digital media
  •  It’s new for services, advertisers and will require “adjustments”

According to the dentsu Global Ad Spend Forecasts, worldwide ad spending – excluding boring political stuff – will reach $728B, which sounds great to every streamer and Wall Street executive but 

Targeted Advertising – Marketers are slowly learning that streaming home entertainment provides them with a chance to tailor their messages and expenses to focus on people who are interested in their products/services rather than the entire audience.  The result is a better return on investment.  

Only about $91B will be spent with US video content services – linear/streaming – and the rest will be invested in social media, websites, podcasts, OOH (out of home) and print (yes, some of us do read newspapers, magazines).

Pay TV is slowly losing its grip on the home big screen as people move to the convenience of lower-cost streaming services.

Unfortunately, since no one has developed a single bundle option (Max, Netflix, Disney, Amazon, Apple, others), we selected four of their ad tiers and added two free ad-supported services with the hope that someone (perhaps our big screen manufacturer) will offer an AI feature that will help pick two to three shows/movies across the services that we’d really like to watch.  

But it will take awhile to get to the point where our preferences can be shared across the walled gardens.

In the meantime, the ad-supported services have work to do to attract marketers.  

They have to give viewers and brands a positive experience when they use the ad-supported service including establishing standard ad lengths per ad (30 sec – 1 min) and per break (1-2 minutes is OK) and then decide if they’re going to provide an ad break at the beginning, mid and end of the viewing.

Studios/streamers already rely heavily on very detailed viewer data to determine in real time which shows/movies/genre connect with most viewers.  It’s very useful in helping them juggle content in their library and develop guidelines they can use in developing/acquiring new projects that will appeal to viewers and attract more subscribers.

In addition, it enables them to fine tune where ad blocks can be placed to optimize the viewer experience.

With the right focus and innovative work, streamers will be able to improve their targeting capabilities so companies can focus on audiences based on shopping behaviors rather than broader demographics.

Better for All – By knowing more about the streaming audience and their individual needs and interests, advertisers are able to develop/deliver ads that are more educational, informative and more results-oriented, making everyone happy, especially the streaming viewer.  

Sharing that data with marketers and ad agencies helps them “prove” the value of their subscribers.  

More importantly the data (along with a steady dose of marketer education) helps the management understand that reaching 2-10M households is less important than reaching 1M households that are interested in and would possibly buy the advertised product/service.

Targeted ads shouldn’t be invasive or downright dumb and with the clear/in depth understanding of the viewers, they are able to create ads that are informative and even helpful to the prospect/suspect customer.

It won’t be easy for streamers, marketers or agencies but it will ultimately solve the issue John Wanamaker voiced back in the late 1800s, Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

It’s the same issue every CEO and CFO have voiced to their CMOs and agencies and now they will have the answers and can do a better job of effectively using their marketing investments – yes, marketing is an investment, not an expense!

AI and the accumulated viewer information data will enable firms/agencies to personalize ads that really work.  Ads that are:

  • Authentic
  • Entertaining
  • Evoke emotion
  • Personal/relatable
  • Useful
  • Work even with the sound off
  • Are in a non-interruptive format

And they’ll be able to more precisely measure their results … good and bad.

                                                               Source – Deeper Blue

When AVOD and FAST services can deliver ads that are effective for the marketer and home viewer, we might see our “no ads, no way” friends dive in.

You know, folks who presently proclaim they “can’t tolerate ads…zip, zero, nada,” will decide that great content and saving money is a sound entertainment investment. 

More importantly, doing away with intrusive, boring ads will increase streaming services’ income so they can invest in more great shows/movies that will entertain regular folks while keeping people in the content creation, production/post industry working.

                                                               Source – Mandalay Entertainment

The shift will prove Helen wrong about content consumers when she said, “I don’t think we were that powerful Julie, you’re giving us way too much credit.”

With the right data processed and used properly, we can make streaming services and companies do the right thing for … us!

Then everyone wins–even if some folks want to/need to take a break from the movie/show.

Andy Markenandy@markencom.com – is an author of more than 800 articles on management, marketing, communications, industry trends in media & entertainment, consumer electronics, software, and applications. An internationally recognized marketing/communications consultant with a broad range of technical and industry expertise especially in storage, storage management and film/video production fields; he has an extended range of relationships with business, industry trade press, online media, and industry analysts/consultants.

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