Date: 24th october 2024
Link to article: here
Author: Philippe Epailly
The integration of advertising into SVOD services offers brands a valuable opportunity to engage with a captive audience in a highly controlled environment.
When Netflix and Disney+ announced their plans to introduce ad-supported subscription tiers, there was initially a great deal of scepticism among consumers and industry experts alike. It’s easy to see why.
Subscription video on-demand (SVOD) had until this date been marketed as services for which the user paid a fee and expected no ads in return. A pivot towards ad-funded tiers from SVOD brands felt like a reversal in strategy – one that some thought would end in failure.
In particular, there was significant concern that introducing ad tiers could dilute brand value for the streamers by bringing these platforms more in line with traditional, ad-laden catch-up TV on-demand, and in the process potentially alienating a segment of their audience. These concerns were centred on worries that the quality of user experience could degrade, with advertisements interrupting the viewing experience that subscribers had come to expect.
Moreover, the move was seen as a defensive response to slowing subscriber growth and resulting financial pressures, rather than a positive attempt to enhance services.
Two approaches to ad tiering
Fast forward to 2024, and ad-tiered SVOD services are now a well-established part of the sector. There have been two very different approaches to their launch. Netflix and Disney+ have opted for a relatively flexible approach, offering ad-supported tiers as lower-cost alternatives to their ad-free services. This strategy allows subscribers to choose between an ad-supported plan at a reduced price or a higher-priced, ad-free experience, catering to diverse consumer preferences and financial situations.
In contrast, Amazon Prime Video implemented a more rigid model, where ads are mandatory across its paid plans unless users specifically opt out by paying a higher premium. This model has led to a significant proportion of Prime Video subscribers finding themselves immediately on ad-supported plans, and reflects a stark difference from the optional ad models employed by Netflix and Disney+.
The impact of ad tiering on consumer perceptions
However, contrary to the concerns voiced two years ago it appears that, far from having a negative impact on how consumers perceive SVOD services, the advent of ad tiers has given the platforms something of a reputational boost.
New research from ScreenThink, MTM’s market intelligence insights tool for the TV and video industry, has found that – despite the addition of ad-supported tiers – the reputation of Prime Video, Disney+ and Netflix as being good value for money has actually increased (by 6%, 7%, and 9% respectively in Q2 2024 compared to Q3 2023). On top of that, Netflix has retained its position as the most indispensable streaming service, with 43% of its viewers indicating they “could not live without it.”
Prime Video’s much different approach to ad tiering also seems to be bearing fruit. Today, 92% of Prime Video’s SVOD subscribers claim to be on ad-supported plans, giving Prime Video 53% of all ad-tier subscriptions within the UK’s SVOD market.
Importantly, Prime Video has been able to achieve this without negatively affecting its popularity. The fact that just 3% of subscribers claim they have selected to go ad-free suggests that most are accepting of the advertising experience (or perhaps unaware of the option to remove ads). Regardless, rather than lose subscribers, Prime Video is currently seeing a boost in its 55+ year-old demographic.
It is also increasingly becoming the primary SVOD for many consumers, with 45% of subscribers having no other, or only one other, paid-for video service.
Marketers take note
These findings demonstrate that the great SVOD ad-tiering experiment has been a success. This adaptation by consumers suggests a willingness to trade-off between cost and viewing experience, especially in tough economic environments.
For marketers, the integration of advertising into SVOD services offers a valuable opportunity to engage with an engaged audience, around quality content, in a digital environment. The data-driven nature of these platforms will allow for increasingly sophisticated targeting as scale builds up to a critical mass. What’s more, their recent inclusion in audience measurement from BARB provides brands and agencies the transparency they need. As a result, SVOD is fast becoming a critical component of the modern marketing mix.
As these platforms continue to refine their advertising products and measurement, they are likely to become even more integral to advertising strategies, offering brands dynamic new ways to connect with consumers across genres and viewing preferences. This trend suggests a promising future for both SVOD operators, advertisers, and viewers alike.