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InContext / An inside look at the business of digital content

OTT monetization needs to adapt fast or die slow

October 5, 2021 | By Johan Liljelund, CTO and Executive Vice President - DanAds @DanAdsSelfserve

Streaming TV may have killed cable - but where do we go from here? After the pandemic-induced streaming boom, consumers are cancelling subscriptions at record rates. As viewers grapple with rising prices and an explosion of subscription services, OTT players should embrace the potential of ad-supported streaming in order to survive an increasingly competitive market.

OTT on the up

The OTT (over-the-top delivery of TV and film via the internet) industry is booming. In 2017, approximately a third of U.S. adults cited streaming services as their main means of consuming television. Double that for people aged 18-29. During the pandemic, streaming television has continued to display incredible growth. In 2020, screen time overall was up almost a third on the previous year. Viewers watched streaming services, such as Netflix, Amazon Prime Video, and Disney+, for one hour and 11 minutes per day. Also, 12 million people joined a service they had never used previously. Three million of those viewers had never previously subscribed to any TV streaming service at all.

A changing paradigm

The mass adoption of streamed OTT services coincides with a fundamental change in the television business model. While television has traditionally been funded largely by advertising, most streaming TV platforms have instead opted for a subscription-only model. For traditional TV providers transitioning to streaming, this choice is understandable, given the abundance of legacy technologies that cannot easily be switched towards an advertising-based SVoD. New players like Netflix, by contrast, have made a strategic decision not to offer an ad-supported subscription.

OTT overload

The subscription model appears to be working well enough for Netflix, the undisputed market leader. The problem lies in the explosion of alternative streaming platforms. In 2020, the average viewer was subscribed to nearly eight streaming services, compared to six in 2019.

Netflix raised the prices of their memberships in 2020 and may well do so again. The result is that the monthly cost for consumers of streaming tv is increasing, as both the prices and number of services go up. There is an inevitable tipping point where paying multiple subscriptions becomes too expensive for the viewer and they will choose to let some go. Many have already crossed that threshold: 36% of Americans plan to cancel streaming subscription services in the next 12 months. And the most common reason – by far – is the price of service.

Ad-supported gains ground

Although subscription dominates, ad-supported streaming services have seen substantial growth during the pandemic. Research by Deloitte found price to be a key factor in consumer streaming decisions. Most consumers (65%) want cheaper ad-supported streaming options (up from 62% pre-Covid). And, of those who did, more than 50% preferred ad-only streaming. Sixty three percent of respondents in a PwC survey said they would be willing to sit through more ads if it meant cheaper subscriptions. Providers offering ad-supported streaming now include The Roku Channel, IMDb TV, Discovery plus, CBS, and Hulu, to name a few.

Sell smarter ads

Part of the appeal of the subscription-only model lies in its apparent simplicity. For established television providers, transitioning their advertising model from cable to digital presents many technical challenges.  For those providers who have embraced ad-supported, a combination of white-glove and programmatic ad sales are the norm.

However, a new approach is also gaining popularity: self-serve advertising platforms. Inspired by the walled gardens of Facebook and Google, self-serve ad platforms allow OTT providers to sell their ad inventory through a branded, automated marketplace. This allows them to tap into the massive SME ad spend that currently drives digital ad growth. SMEs increasingly favour self-serve solutions, and for OTT brands with their own platforms, less value is lost in the infamously murky “black box” programmatic supply chain.

Roku, for instance, sells home screen banner ads, Roku screensaver ads, and video ads via their self-serve platform Roku Ad Manager. Ad Manager is designed to be a smarter, simpler, and more cost-effective way of managing channel promotional campaigns within the Roku ecosystem. It is just one of an increasing number of self-serve platforms popping up among OTT brands.

The other important aspect of ad-supported streaming is that it’s not simply a return to the dark days of regular, irritating ad breaks (as still found on linear TV). OTT providers that adopt ad-supported models are innovating the user ad experience to make it more effective and less obnoxious. Hulu, for instance, runs pause ads. This non-disruptive, non-intrusive user-initiated ad experience appears only when viewer presses pause when watching content. That’s a far cry from the ad breaks of old, and an indicator that ad format innovation is an essential part of the new streaming experience.

Ad-supported is inevitable

As OTT prices and the number of platforms continue to rise, consumers are increasingly looking for flexible, low-cost alternatives to meet their streaming needs. For OTT providers, offering only subscription models means that they price themselves out of the market for cost-conscious cord cutters.

We are not likely to return to the days of constant ad breaks and linear TV. Rather, the future lies in the flexible middle ground where consumers can pick and choose from a selection of price models: subscription, ad-supported, or a hybrid of both. OTT providers need to embrace ad-supported streaming - the sooner, the better.

About the author

Johan Liljelund is the Executive Vice President at DanAds based in Sweden. Johan is an entrepreneur with more than 20 years of experience in developing technology towards the media industry and a pioneer in the digital advertising industry enabling publishers to streamline and efficient their internal processes on a global market.

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