Streaming services near you coming soon: Ads

Reed Hastings is consistent year after year. Whenever someone asks Netflix’s CEO when he will introduce ads on his streaming service, he insists it doesn’t make any sense. He would say that Netflix is ​​a better service because it has no ads.

That was when Netflix was growing up.It is Zoom out – now Netflix says there will be ads: Last month, after announcing that his company was losing users for the first time in a decade, Hastings told investors he wanted to launch a lower-priced version of the service with ads”in the next year or two,” though he didn’t know the details. “I’m sure we’ll go in and find out. ”

There is a lot to do.This week, Netflix moved up the schedule, told employees Ad tiers likely to launch by the end of 2022.

All of this highlights a major change in the way streaming video companies see their business — and the way some people watch TV and movies. TV commercials that seemed destined to be relics are suddenly alive again, even those that once staked their identities on ad-free services. Last year, for example, HBOMax began selling a lower-priced tier with ads. Disney+ will add one of its own this year.

It’s a shocking shift for an industry that seems to be moving away from advertising as quickly as possible — in part because it’s following Netflix’s anti-ad lead. But if you take a step back, streamers are willing or reluctant to accept ads for two easy-to-understand reasons:

  1. Even in 2022, TV advertising is hugely funded and growing: Media agency Zenith predicts advertisers will spend $65 billion on TV ads this year, up 4% from last year. Even in 2022, people will still be watching a lot of TV. But they’re increasingly watching it on streaming services on TV — Streaming services now account for 30% of TV time, according to Nielsen. Therefore, advertisers want to fish where there are fish.
  2. The cost of streaming wars is high. All the new services chasing Netflix are pouring billions into programming to attract and retain subscribers. In the past, networks and studios had multiple ways to make money from programming — advertising, cable subscription fees and syndication — but the new model does away with all of that in favor of a single fee for consumers.Adding ads is a way to bring in more money and/or increase profits – this increasingly important to investors.

It’s even harder to understand why the ad experience on streaming TV — for people who pay for ads and those who have to watch them — still sucks.

Traditional TV advertisers know exactly when and where their ads run, and at least have some sense that they can reach a lot of people with a single purchase. But while streaming platforms promise more data and better targeting, advertisers have to contend with a bewildering array of different programmers, ad serving companies and platforms.

Meanwhile, streaming TV viewers encounter non-skippable commercials that are often repeated multiple times per show and that often seem to be randomly spliced ​​into a TV show or movie without any rhyme or reason.They are often so loud – that U.S. lawmakers propose regulating them. All in a medium that is supposed to be more personal and smarter than old TV. Instead, a lot of emails look as silly and scattered as spam in your inbox.

“We’ve brought to TV everything the internet has taught us about how to make worse ads,” said Joe Marchese, a former head of internet and TV advertising.In 2014, he sold TrueX to Fox) now run Human Venturesa venture capital firm.

“There’s a huge gap between how digital ad technology is going and what it takes to be successful in the TV environment,” said Dave Morgan, a longtime digital ad executive whose current company Simulmedia shares a partnership with traditional Partner with streaming TV advertisers.

It’s a little puzzling that Netflix, which has long made ad-free streaming a core part of its brand, is now diving headfirst into advertising with seemingly little planning and no apparent infrastructure. Hastings’ comments on the earnings call suggest he wants to outsource most of the work to “someone else” [who would] Do all the fancy ad matching and integrate all the data about people so we can stay out of the way. That’s because most TV ad industry people I’ve spoken to agree that the worst part of the streaming ad experience stems from a maze of middlemen sitting between advertisers and streamers, which is often hard to figure out. Where, when and how ads end up on your screen.

These all coincide with Netflix’s history of struggling to control every part of its service — from creating its own distribution system in the DVD-by-mail era to building a sophisticated system to deliver streaming video. So either Hastings has a plan he’s been quietly working on, outside the horizon of the advertising industry, or he’s doing something quickly to prop up Netflix’s revenue and stock price. Either case would be surprising.

Before we go any further: If you’re used to ad-free streaming from places like Netflix, Disney+, and HBO, don’t worry, as long as you’re willing to pay. All of these companies have or are developing tiered services, where the most expensive version will be ad-free, while the cheaper version will have ads.

However, many of the new (fastest growing) services are explicitly advertising, such as Comcast/NBCU’s Peacock, Paramount’s Pluto, and 21st Century Fox’s Tubi.Tech-based TV companies are also increasingly interested in ad-supported streaming: Amazon has a program called Statue of Libertyformerly called IMDb TV; Roku has its own free Roku channel that currently stocks bargain leftovers (and those Quibi show shows you’ve never watched) but Pay TV channel Starz may one day feature programming.

None of this is necessarily bad. The programmers rightly argue that ad-supported streaming gives consumers more choice in what they want to watch and how much (if any) they want to pay.

Some advertisers say they are very happy with the advantages digital TV advertising can offer. Sam Bloom, CEO of Camelot Strategic Marketing & Media, said he spends about $200 million on streaming TV ads for clients and is glad the technology has allowed him to eliminate some of the waste.

For example, Roku uses “Automatic content recognition” The technology on its smart TVs allows it to track what people are watching, whether it’s from a streaming service, cable or even over-the-air. It might creep you out, but for Bloom, it’s a plus : It allows him to not show ads to viewers who have already seen his client’s ad, or it allows him to target customers who have seen the client’s competitor’s ad.

Still, even the most optimistic of digital TV boosters will concede that there’s a lot more to come with streaming TV advertising. “It was an awkward adolescence,” an executive at a major streaming tech company told me. But with the money rolling in, it’s unclear how quickly that will happen. “Yeah, you’re going to see a bunch of tweets saying, ‘I watched the ad three times and I hated the experience,'” said an executive who runs a major ad-supported streaming service. “But that person is still watching.”

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