Why Streaming Companies Need To Tread Carefully When Introducing Ads

The Australian launch of Netflix’s new subscription tier: “Basic with Ads” has arrived: the corporate promise goes something like “everything we love about Netflix, but with a few small commercial interruptions”. But with the stakes so high in this crowded sector, can streaming companies assume consumers will simply shrug and accept ads as part of the new streaming landscape?

Nick Cherrier, a subscription and pricing expert from leading subscription management platform, Zuora, believes streaming companies need to tread carefully as they introduce ads.

“The central question any streaming service considering introducing ads needs to ask itself is ‘What is the price I need to charge for an ad experience that’s low enough to attract new subscribers but high enough that it doesn’t cannibalise from the existing subscriber base?’

“This becomes trickier at a time when inflation is rising faster than usual. Price increases may be justified, even essential from a business operations perspective, but if introduced at the same time as an ad-funded model, they could easily be perceived as a money grab. It may seem that punters are being asked to pay more for the ‘privilege’ of having their service remain ad-free.”

Cherrier says that it’s not a foregone conclusion that every major streaming service will introduce ads in the near future, but for those that do, user experience must remain high on their list of priorities.

“It’s a delicate dance indeed. The new ad-based subscription tiers we start to see may be referred to as ”basic” but the calculations behind their implementation are anything but.

“I think high-quality, low-frequency advertisements are essential. One of streaming companies’ great assets is their access to rich user data; they should use this to carefully target audiences so that those subscribers who opt for this subscription tier see ads that are relevant to them. The idea of the right ads being seen by the right people is good for consumers, good for platforms and good for advertisers.”

Foxtel announced recently that it would be following the lead of the US giants, Netflix and Disney+, by offering ad-supported subscription options for its Binge platform from early 2023. Kayo, its sports streaming service, already incorporates ads. The News Corp company says it will cap ads to four minutes per hour and make certain repetition is minimised.

Cherrier says these are sensible measures and that, while implementation of ads into a sector that has been traditionally ad free needs to be sensitive, what really matters most is the shows.

“Ultimately, whether a service incorporates ads or not, its long-term viability really comes down to content. We remain in a golden age of television, and companies are spending enormous sums of money on shows – Netflix and Disney alone have spent US$40 billion this financial year.

“We, the TV-loving public, have come to expect exceptional quality; and the organisations who provide it are constantly innovating, iterating and learning to make sure that quality is maintained. It remains to be seen whether that maintenance of quality is now permanently dependent on the revenue from ads.”

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