Coming soon to a streaming service near you: Ads

Coming soon to a streaming service near you: Ads

Reed Hastings was consistent, year after year. Every time someone asked the CEO of Netflix when he would introduce ads into his streaming service, he insisted it didn’t make sense. Netflix was a better service because it had no ads, he would say.

Then Netflix grew. Now is is shrinking – and now Netflix says it will have ads: Last month, after announcing that his company had lost subscribers for the first time in a decade, Hastings told investors he wanted to introduce a cheaper version of the service that would feature the next year or two“, Although the details were not clear to him. “I’m sure we’ll just come in and figure it out.”

There is a lot to think about. This week, Netflix shifted the schedule, telling employees ad level could be introduced before the end of 2022.

All of this highlights a significant change in the way video streaming companies view their business – and how some people will watch TV and movies. TV advertising, which looked like it was destined to be a relic, is suddenly coming to life again, even with services that once put their identities in the absence of commercials. Last year, for example, HBOMax began selling a lower price with ads; Disney + is adding one of its own this year.

It’s a turnaround for an industry that seemed to be moving away from advertising as fast as it could – in part because it followed Netflix’s leadership in the fight against advertising. But if you retire, there are two easy-to-understand reasons why streamers accept ads, willingly or unwillingly:

  1. Even in 2022, there is a huge amount of money in TV advertising, and it continues to grow: Zenith predicts that advertisers will spend $ 65 billion on TV commercials this year, 4 percent more than last year. Even in 2022, people still watch a lot of TV programs. But more and more people are watching it on streaming services on their TVs – streaming services now take up 30 percent of TV time, according to Nielsen. So, advertisers want to fish where the fish are.
  2. Stream wars are expensive to lead. All the new services that are chasing Netflix are investing billions of dollars in programming to attract and retain their subscribers. In the old days, networks and studios had more ways to make money from programming – advertising, cable TV subscriptions and syndication – but the new model removed all those who used a single fee from consumers. Adding back ads is a way to make more money and / or increase profits – which are increasingly important to investors.

What’s a little harder to understand is why the experience of streaming TV ads – for people who pay for ads and people who have to watch them – is still bad.

Conventional TV advertisers know exactly when and where their ads are displayed, and have at least some sense of reaching a large number of people with a single purchase. But while streaming platforms promise more data and better targeting, advertisers have to deal with a confusing array of different developers, ad serving companies and platforms.

Meanwhile, viewers who stream TV will come across ads that cannot be skipped and that are often repeated several times per show, and often seem randomly merged into TV shows or movies for no rhyme or reason. They are often too loud – and that’s it U.S. lawmakers have proposed regulating them. All this in a medium that should have been more personalized and smarter than the old TV. Instead, a lot of it looks stupid and scattered like spam in your inbox.

“We took everything the internet taught us about how to make commercials more shitty and put it on TV,” says Joe Marchese, former CEO of Internet and TV Ads (sold his company to TrueX Fox in 2014) who is now running Human Venturesstartup investment company.

“There is a huge mistake between the way digital advertising technology has evolved and what it will take to be successful in a TV environment,” said Dave Morgan, longtime digital advertising executive whose current Simulmedia company works with conventional and streaming TV advertisers.

It’s therefore a bit confusing that Netflix, which has long been streaming ad-free a key part of its brand, is now rushing with ads, seemingly without a lot of planning and without visible infrastructure. The same goes for Hastings ’earnings in call comments suggesting he would like to leave most of the work to“ other people [who would] do all the fancy ad matching and integrate all the people data so we can stay away from it. ” This is because most people in the TV commercial industry I talk to claim that the worst parts of the streaming ad experience come from the maze of intermediaries between advertisers and streamers, making it often difficult to figure out where, when and how ads end up on your screens.

None of this coincides with Netflix’s history of trying to control every part of its service – from creating its own distribution system back in the days of DVD-mail, to building a sophisticated streaming video delivery system. So either Hastings has a plan he built quietly, out of sight of the advertising industry, or he’s rapidly developing something to increase Netflix’s revenue and share price. Any scenario would be surprising.

Before we move on: if you’re used to streaming without ads in places like Netflix, Disney + and HBO, you don’t necessarily have to worry, as long as you’re willing to pay. All these companies either have or work on a multi-layered service, where the most expensive versions will be without ads, and the cheaper ones will have ads.

But many new – and fastest growing – services are explicitly designed to carry ads, such as Comcast / NBCU Peacock, Paramount Pluto and 21st Century Fox Tubi. Technology-based TV companies are increasingly interested in streaming and supporting commercials: Amazon has something called Freevee, formerly called IMDb TV; Roku has its own free Roku channel, which is currently stocked with leftover cheap buckets (and those Quibi shows you’ve never watched), but one day it may include programs from the Starz pay TV channel.

None of this is necessarily bad. Developers rightly claim that ad-supported streaming can give consumers more choice about what they want to watch and how much, if anything, they want to pay for it.

Some advertisers say they are quite happy with the benefits that digital TV ads can offer. Sam Bloom, CEO of Camelot Strategic Marketing & Media, says he spends about $ 200 million on streaming TV commercials for his clients and is pleased that the technology allows him to dispose of some of the waste.

Roku, for example, uses “Automatic content recognition”Technology on its smart TVs that allows it to monitor what people are watching, whether it comes from streaming services or cable or even wireless TV. This may sound creepy, but for Bloom, it’s a plus: it allows him not to show ads to viewers who have already seen his clients ‘ads, or it allows him to target customers who have seen ads from his clients’ competitors.

Yet even the most optimistic digital TV booster will admit that streaming TV commercials have a lot to grow up with. “It’s in an awkward adolescent phase,” the CEO of a large streaming technology company tells me. But with the influx of money, it is unclear how this will happen in the near future. “Yeah, you’ll see a bunch of tweets about how I‘ watched something and saw the ad three times and I hated this experience, ’” says the CEO who runs a great streaming service backed by ads. “But that person was watching him.”

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