Amazon, Disney and other streamers embrace ads

The two titans of the video streaming wars — Netflix and Disney+ — have long resisted ads, showing a reluctance to air premium series like “Stranger Things” or “The Mandalorian” alongside ads selling dish soap, soap, and soap. soda and medicine.

“No commercials are coming to Netflix – period,” said Reed Hastings, one of Netflix’s co-CEOs. A few years ago, a view he repeated for some time. “We don’t think the consumer experience would be particularly good if we had advertising on Disney+,” Christine McCarthy, Disney’s chief financial officer, said in late 2020.

But now streamers are starting to arrive on Madison Avenue.

As the pandemic-induced surge in subscriptions shows signs of waning, major streaming media and tech companies are starting to get bullish on advertising. To reach more people — including those made cost-conscious by high inflation and subscription overload — streamers are offering a deal: exposure to ads in exchange for lower prices.

Last week, Amazon doubled down on its ad-supported free streaming service, renaming it IMDb TV’s Freevee and announcing plans to increase its programming budget. HBO Max started running ads over the summer, and since January the same number of people have subscribed to the retail version as it did on its ad-free tier.

But the revaluation was even more surprising at Netflix and Disney.

“Never say never,” Spencer Neumann, Netflix’s chief financial officer, said last month of the possibility of advertising coming to Netflix. The comments, while non-committal, were enough to send investors and analysts, who wondered if this was raising red flags about the company’s slowing subscription growth, into a state of disarray. drunk.

Disney was even more abrupt in its reversal. In March, Disney, the company, announced that it would introduce a low-cost advertising tier for Disney+ this year, explaining that it would be a “building block in the company’s path to meeting” its subscription goals. .

“When the streaming business started and prices were in the mid-figures, there was no room or need because prices were competitive and low enough,” said JB Perrette, president of global streaming at Warner Bros. Discovery, the new parent company of HBOMax. “But the content is expensive, and as the price for ad-free tiers has gone up – to teen level on some of these packages, and even Netflix is ​​moving up – it has to be paid for.”

The number of subscribers to ad-supported services has exploded. At the end of last year, 129 million people used an on-demand video ad service, according to Insider Intelligence, a market researcher solidify. By 2025, the company expects that number to grow to 165 million users. Similarly, video advertising revenue jumped 51% last year to $39.5 billion, according to the Interactive Advertising Bureau, a trade organization.

“Free, ad-based TV is no longer at the kids’ table,” said Jennifer Salke, head of Amazon Studios, which provides programming to Freevee.

Some executives said the arrival of advertising was inevitable, as the streaming industry’s offerings increasingly mirror what’s been available on television for decades: a mix of broadcast, basic cable with ads and ad-free premium services.

“In many ways, we are seeing the reincarnation of the last half-century of television into the age of streaming,” said Mr. Perrette, director of streaming at Warner Bros. Discovery, whose portfolio also includes Discovery+.

Some streaming platforms have been running ads for years; Hulu has had ads since 2007, adding an ad-free level in 2015. The Disney-owned company reaches nearly half of all connected TV homes in the United States, Comscore found last year.

“Streaming services that are essential are on a very short list, and those that are essential and ad-supported – even shorter,” said Josh Mattison, vice president of business operations for Disney Advertising. “You look quite rarefied at the top.”

For years, brands have wanted to advertise on platforms like Netflix. Instead, Madison Avenue has often stuck to product placement and the occasional brand partnership.

But with Netflix’s growth slowing, many in the streaming industry say the company’s shift to advertising seems inevitable. The company will release its latest subscription issues on Tuesday afternoon.

“I suspect the religion they currently have of not having ads will change over time,” Jason Kilar, the former chief executive of WarnerMedia, said on “The Town” podcast this month. “I say this because offering consumers lower prices is a very, very good strategy.”

The idea of ​​ads breaking down “Bridgerton” or “Severance” may be anathema to some viewers, but it’s exciting to many advertisers.

Andrew Essex, a longtime publicist who now runs consultancy GoingConcern, said “the streaming industry is maturing, getting a lot more realistic, where they’re saying to hell with the user experience – we need revenue, we We’re going to explore additional forms of monetization. It’s basically the game.”

Many companies are trying to expand their reach beyond traditional television, where a dwindling number of must-see events are attracting smaller audiences and aging audiences.

The financial implications mean that the presence of streaming ads is “fantastic news for anyone who advertises and ultimately fantastic news for the American consumer, who can’t afford 15 paid subscriptions,” he said. said Kelly Metz, general manager of advanced TV activation at Omnicom Media Group.

“They need ad-supported models so they can balance their bank accounts at the end of the month,” she said. “There’s a cap on what the American consumer can practically afford, much like what we saw back then with cable TV.”

As more and more services added ads, they became a playground for experimenting with ad formats. In some cases, ads appear based on whether viewers are binging or interrupting shows. Hulu asks viewers if they’re willing to watch longer ads earlier in their viewing session in exchange for fewer ads later, or if they’re open to sequential messaging over multiple commercial breaks. The company is studying interactive trivia-style advertisements to run during movies.

Peacock worked with several major companies to promote his “Fresh Prince” adaptation, “Bel-Air,” which had its premiere in February. State Farm and Unilever created custom ads featuring Jabari Banks, the show’s star, and aired on NBC Universal’s digital and linear channels.

With so many streaming options to choose from, advertisers must play “a game of mind-sharing and salience,” battling to capture viewers’ attention, said Juliana Wurzburger, director of paid media at Anheuser- Busch InBev. This season, about 30% of the company’s video spend was on streaming.

“We are absolutely trying to increase this year after year, trying to follow where the consumer is,” she said.