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Now That Subscription Streaming Is Dead, Are There Enough Ad Dollars for Everyone? (Bloom)

African watering hole
(Image credit: (Photo by Wolfgang Kaehler/LightRocket via Getty Images)

Here in the opening days of the Upfronts, that annual exercise in self-promotion from an industry all about self- (and client-) promotion, it’s a good time to ask one simple question: Now that even Netflix, Disney Plus and Apple TV Plus are adding ad-based programming or even full service tiers, are there enough dollars out there for everybody?  

Timing for this question is particularly pointed, what with inflation pinching discretionary spending, work from home and free time fading, and a potential recession looming. Oh, and the easy money fueling 13 years of tech boom seems to be drying up faster than Lake Powell. 

So, let’s all watch ads! 

The good news: There’s plenty of cash here. The Interactive Advertising Bureau, admittedly no disinterested third party, said in its wrap-up of 2021 digital ad revenues that digital video generated an estimated $39.5 billion in ad revenues last year, up almost 51% from the pandemic-transformed 2020. 

That’s yet more evidence that brands are flowing their spending plans from legacy platforms to connected TVs and other digital distribution channels. And it can’t happen soon enough for all those streaming executives hoping to get a really mammoth bonus next Christmas. 

But it won’t be so easy as waiting for the checks to roll in. 

For one thing, media companies with legacy broadcast and cable operations are having a moment of intense reconsideration in their plans to denude those platforms of any worthwhile content as fast as possible, and shove it onto their subscription streaming services. It might be prudent to keep squeezing those still-relatively-golden geese just a bit longer.

That’s because we now know we can’t count on SVOD to attract 1 billion paying customers by, say, 2025 or so. 

Netflix’s difficult first half of 2022, where it had the temerity to lose a tiny fraction of its 222 million subscribers, has pushed it to suddenly reconsider seemingly every one of its basic tenets of operation, from issuing a lump-it-or-leave-it “culture” document for grumpy employees to considering live-streamed reality competitions to, yes, getting ready to launch an ad-supported tier by year’s end. 

The trade organization Digital Entertainment Group estimated on Monday that Q1 subscription streaming was up 17% year over year, “as direct- to-consumer services including AMC Plus, Disney Plus, HBO Max, Paramount Plus, Peacock and others continued to add subscribers at a healthy rate.”

Healthy is good. But subscriptions can be so complicated, what with no long-term contracts, churn nearing 40% and all those pricey, attention-grabbing originals to produce. Netflix’s stumble suggests “healthy” is a good, not automatically attainable, goal for the sector now.

Add to that other complications. 

Accenture’s “Streaming’s Next Act” report a couple of months back predicted declining consumer willingness to spend on video, exacerbated by poorly constructed bundles, difficult-to-navigate interfaces, and recommendation engines that can’t track everything you watched, or find it anywhere. 

And if those Accenture-delineated issues are a problem among paid services, imagine what it’s like on the lower-rent ad-supported side. Customers there are already annoyed about cheaper-but-not-free services that constantly serve up irrelevant, repetitive and excessive commercials, creating experiences that feel like the basic-cable services they just cut. 

It’s tempting to expect that the IAB’s $39.5 billion pie of online video advertising will keep growing at a hefty 51% clip this year and thereafter. But let’s consider that halcyon vision. 

First, we’re adding three formidable new players to the scrum: Disney Plus, whose parent has been selling ads for more than six decades around lots of yummy show; Apple TV Plus, whose parent already is generating billions annually from advertising elsewhere in its vast operations and is now adding live sports; and Netflix, which has boundless customer data and an interface and recommendation engine that are very good. 

Oh, and for good measure, throw in Amazon. It hasn’t shown any particular interest in putting ads on Prime Video, but the e-commerce giant does keep buying rights to ad-supported live sports such as Thursday night NFL games that will attract lots of national ad dollars. Amazon also operates one of the fastest growing AVOD platforms, Freevee.

Last year, Amazon made $31 billion in online advertising, third on the Interwebz behind only Alphabet/Google/YouTube and Meta/Facebook/Instagram, both of which also know something about digital video advertising. 

And there’s that whole messy, eroding economy thing, which might just affect not only how many SVOD channels we pay for, but also how much brands will spend on advertising in coming months. We’re still in a bit of economic free fall, so it’s too soon to know where this plays out, but it doesn’t look promising for optimists. 

So, you there, second-tier streaming service making some nice change from your FAST/AVOD operations and your Goldilocks-style ad-subsidized subscription tier. What are your real chances of continuing to see those revenues grow?  

Ad-supported services promise a substantial overall market opportunity. But it won’t be an endlessly growing opportunity. For now, it’s likely growth is going to be considerably more modest for a while. 

That means Hollywood companies will need to pursue a rigorous process of triangulation to thrive in this suddenly very complex new ecosystem: 

>They’ll need to preserve their vestigial legacy outlets, milking shows there for revenue as long as possible. 

> They’ll need to keep growing (and especially, improving!) their subscription services. That means spending on distinctive programming, but also improving those buggy, unreliable interfaces. 

> And finally, they’ll need to expand the pie, both of viewers and revenue, with ad-based digital services. They’ll also need to more effectively turn those ad-supported outlets into more effective downstream distribution windows for all the pricey content they’re still making. 

All this will happen just as the ad-based watering hole is about to get a lot more crowded. Hope everyone’s figured out how to get enough to drink. 

David Bloom of Words & Deeds Media is a Santa Monica, Calif.-based writer, podcaster, and consultant focused on the transformative collision of technology, media and entertainment. Bloom is a senior contributor to numerous publications, and producer/host of the Bloom in Tech podcast. He has taught digital media at USC School of Cinematic Arts, and guest lectures regularly at numerous other universities. Bloom formerly worked for Variety, Deadline (opens in new tab), Red Herring, and the Los Angeles Daily News, among other publications; was VP of corporate communications at MGM; and was associate dean and chief communications officer at the USC Marshall School of Business. Bloom graduated with honors from the University of Missouri School of Journalism.