21 April, 2022

Streaming Services Are Embracing Advertisements

By Alex Anyfantis

After Netflix’s latest report in which it recorder over 200,000 lost subscribers, the company is now considering a strategy of lowering costs with the addition of ads. And it isn’t the only one that seems to be following a similar approach in the streaming service market.

Netflix’s report outlines that the losses were mainly due to the disruption of services in Russia as well as the rise in competition. However, the predictions are rather bleak, with a further 2 million subscribers set to drop the streaming service within the next quarter, despite the line-up of many highly anticipated series set to launch within the next couple of months such as Stranger Things and Ozark.

While the company has pointed out that it plans to crack down on shared accounts as part of its strategy to maximize revenue, it also said that it is examining the prospect of offering its services at a lower price with the addition of ads, in a first for the company.

But it isn’t the only player in the industry to be considering changing its approach towards ads, with Disney+ already announcing back in March its plan to offer a new option for subscribers at a lower price that comes with advertising breaks.

Reed Hastings, co-chief executive, Netflix

What makes Netflix’s change in perspective so controversial however, is the positioning of the company’s co-chief executives Reed Hastings a few years back, who had pointed out that there would never be any ads shown on the platform. The figureheads at Disney shared a similar opinion when asked about it.

Hastings seemed apologetic in the letter that came with the recent report: “Those who have followed Netflix know that I have been against the complexity of advertising, and a big fan of the simplicity of subscription. But as much as I am a fan of that, I am a bigger fan of consumer choice. And allowing consumers who would like to have a lower price, and are advertising-tolerant, get what they want makes a lot of sense.”

Netflix has been hemorrhaging users for a few months now, falling way short of its predictions which forecast an additional 2,5 million users to its base of subscribers for the first quarter of the year.

Obi-Wan Kenobi, a spin-off of the Star Wars franchise, is one of the most anticipated series for Disney+.

And it appears as though this trend may continue. The US market share of Netflix has dropped to 25 percent and according to GlobalData, is predicted to fall to 16 percent by 2026. Thematic analyst at the company, Charlotte Newton pointed out the reasons behind this dramatic decline.

“People are feeling the pinch with the rising cost of living and must be more selective about what they choose to spend their money on. Subscription-based streaming services are just one example of where people may choose to cut costs to make ends meet. It is not just Netflix taking a hit. Disney+ cancellation rates have tripled since the beginning of 2022, compared to Q4 2021,” says Newton

“Streaming services are seen as a luxury. Fewer people will want to have more than one subscription and will base their decision on content offerings. Netflix has delivered well on this front, with hits like Bridgeton, Ozark, and the Adam Project. However, what keeps many viewers is the ability to re-watch favourites like Friends over and over again. The streaming service faces strong competitors who are more willing to spend on content and buy fan favourites. In essence, they will have to diversify their offerings, produce quality content and keep the classics, to be considered worth the monthly spend.”

Other streaming service providers, such as the US’ Hulu or Amazon Prime, have been hosting ads on their platforms for years, showing no signs of slowing down, yet that didn’t affect their viewership in the slightest. HBO Max also started showing ads this summer while maintaining the same amount of viewers as their subscription-based, ad-free channel.

Streaming services have always been considered as a “hallowed ground” of sorts for advertisers, who so far have only been granted access to it via product placement on certain shows. However now it seems the gates are ready to bust open as the companies look for alternative sources of revenue.

A few experienced people in the advertising industry have pointed out that this is essentially a sign of “maturity” by the service providers, who have decided to abandon the promises they made to their audiences as they seek their own financial growth.

Stranger Things 4, one of the hottest shows coming to Netflix

It is also pointed out that consumers may ultimately benefit from this shift in direction, as they will no longer be forced to dish out such hefty amounts for subscriptions, with service providers now being able to sign contracts worth millions of dollars just for a ten-second ad. That will in turn permit them to decrease their subscription rates.

All that remains to see is how the audiences will react to this admittedly sudden, yet the all-too-necessary shift in gear by their favourite streaming services, in what may seem to be a return to regular television broadcasting for those in the older generation who were around during the early days of the internet.

Back when there was no such thing as choosing what you want to watch and we were forced to wait patiently through the ads as the program that was on offer by our networks would resume…

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