Audiences shouldn’t take the prolific volume of quality entertainment options currently available for granted, because the entertainment industry may never be quite this crowded again. As Hollywood faces a potential winnowing of content options in the coming years, the ad-supported model is being viewed as a stabilizing force for an uncertain business.
FX Networks president John Landgraf recently said at the Television Critics Association summer press tour that we’ve “reached the peak of the Peak TV era” and viewer behavior is beginning to reflect that. Just one-in-five consumers plan to add an additional streaming video on demand (SVOD) service in the next year while 79% report keeping or even reducing their current subscriptions, according to a report from Screen Engine/ASI and streaming network FilmRise provided exclusively to TheWrap.
“I do think that this is the beginning of a shift in the subscription universe,” Tejas Shah, FilmRise’s SVP commercial strategy and analytics, told TheWrap. “But more importantly, I think that there’s a realization that it’s an elastic product and the advent of ad-supported streaming is going to come to the forefront.”
Deescalation and consolidation
Netflix leadership, which loved boasting about the company’s mammoth programming spend in recent years, signaled during the company’s last earnings call that its annual content budget would remain in “the same zip code” for the next few years. Warner Bros. Discovery executives have repeatedly emphasized fiscal responsibility while directly stating they aren’t interested in “winning the spending war.” Earlier this year, The Walt Disney Company reduced its content expenses by $1 billion.
Hollywood spending is coming down or, at the very least, not continuing to soar. At the same time, WBD plans to merge HBO Max and Discovery+ into a single service (and develop its own free ad-supported streaming TV service) while speculation runs rampant that Disney (Disney+ and Hulu) and Paramount Global (Paramount+, Showtime Anytime, BET+, etc.) may eventually combine their respective collections of multiple streamers into more robust individual offerings. A reduction of major players and scripted content is in motion and ad-supported video on demand (AVOD) and free ad-supported television (FAST) not only offer much-needed ad revenue, but a more streamlined experience less vulnerable to the whims of fickle audiences.
Daniel Christman, SVP of cross platform at Screen Engine/ASI, believes there may be “some consolidation” on the horizon, but emphasizes that the larger industry story against that backdrop is “more about the ease of use and the opportunity to come in and out at your leisure” when it comes to streaming. “If we’re having a conversation about churn, with an AVOD or FAST service, it’s not really even a question in a consumer’s mind. It’s always available and it’s always easy to use.”
The lower cost and lower rate of subscriber cancellations position AVOD as a more reliable platform at a time when Netflix, which has boasted the lowest churn rate in the streaming industry for years, is seeing cancellations spike. FAST is even more accessible as a free service that typically bundles programming from multiple sources. Speaking of which…
Avoiding the TV bundle pitfalls
Ad-supported streaming viewers have grown from 60 million in 2018 to a projected 140 million this year, according to eMarketer. Ad-supported’s share of streaming time has ballooned to 46% this year, topping SVOD (29%) and pay-TV (17%), according to TVision. This growing market is partly a response to “inflationary pressures” and “the potential of a recession” that make it unrealistic for every consumer and company to adopt pure play SVOD services, according to Shah. Harsher economic realities naturally lead to corporate consolidation and cost-conscious consumer behaviors. There’s a reason Wall Street pulled a 180 on Netflix’s all-in streaming model.
“AVOD is really growing while traditional linear television viewing has continued its gradual decline,” Mark Orne, EVP, cross platform group at Screen Engine/ASI, told TheWrap. “So it’s providing a replacement as consumers overall continue to shift towards digital and look to consume entertainment through all different sources and broaden the variety of content they consume.”
But with 60% of consumers utilizing both AVOD and SVOD, according to the report, how does the industry create a value proposition that differs from the traditional pay-TV model that mixed ad-supported broadcast and pay-to-play cable? In other words, how does Hollywood avoid simply recreating the same system via the internet that’s now falling out of fashion?
AVOD and FAST services are looking to under-serve the amount of advertising per programming hour and vary the length and content of regular ad breaks to provide a better overall user experience. Personalization and minimization are key to avoiding the same mistakes that felled traditional TV. No more five-minute ad breaks that trap viewers in a frustrating waiting game. It’s now about optimizing the experience to connect viewers with ads that may appeal directly to them (and streamlining the subsequent buying process).
SVOD, with its library of films and TV shows at user’s fingertips, brought the rental store into our living rooms, contributing to the sharp decline of DVD sales. What AVOD and FAST has done is grow at a time when there’s an overwhelming plethora of SVOD services and it’s become difficult to find the specific content you want.
“The advent of premium AVOD experiences has removed friction from a streaming ecosystem that thrived on removing friction from traditional home entertainment,” Orne said.
Entertainment’s innovation cycle continues ever onward. The threat of tough macro-economic challenges is forcing companies to reduce their offerings while consumers grow increasingly judicious with their buying, at least when it comes to pure play SVOD. This creates an opportunity for ad-supported to serve as the bridge between new financial realities for all.
Editors note: On Thursday, TheWrapPRO hosted TheGrill: Focus on AVOD presented by FilmRise with a series of expert speakers on ad-supported streaming. The two panels were titled: “State of the Industry: The Rise of Ad-Supported Streaming,” and “Monetizing Opportunities in AVOD: Advertising, Analytics and Audience.”
Watch TheWrapPRO’s TheGrill panels on ad-supported streaming above.
