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For SVOD success, launch with ads from the start

August 8, 2023 | By Rande Price, Research VP – DCN

In the ever-changing landscape of streaming services, media companies constantly explore new strategies to attract and maintain subscribers. One notable approach is the success of the ad-support SVOD tier. In fact, new research from Ampere shows that streaming services launching with an ad-supported tier from the start have a higher proportion of subscribers than those that added it later.

Ampere’s data reveals that SVOD services like Hulu and Peacock, which were early adopters of ad-supported tiers, boast an impressive 90% of ad-supported viewers. On the other hand, latecomers like Netflix, Disney+, and HBO Max struggle to gain significant traction with their ad-supported options. These late starters capture only a small share of their subscriber base. For instance, as of June 2023, approximately 2% of Netflix and Disney+ US subscribers are on the ad-supported tier. Even HBO Max, which launched an ad tier in March 2021, had only 5% of its subscribers on its ad-supported plan before transitioning to Max in April.

Drivers of success

Ultimately, an ad-supported tier’s success depends on several factors, including the service’s pricing strategy, content library, and targeted audience. Launching with an ad-supported option from the start appears to be more effective in building a substantial base of viewers. Late adopters may find attracting a significant share of their subscribers to the ad-supported tier challenging. This is especially true if the service has a strong legacy of being ad-free.

Ad-free service is still appealing

Despite the apparent appeal of ad-supported viewing, most new subscribers across the top seven SVOD services still prefer ad-free plans. According to Antenna data, between January and May 2023, three out of five new subscribers opted for ad-free viewing. Even services that recently introduced ad-supported tiers, such as Peacock, saw a considerable percentage (69%) of new subscribers choosing ad-free options.

However, there are potential changes on the horizon. Netflix has made a strategic decision to remove its Basic plan, which previously served as a mid-range option between the ad-supported and standard ad-free plans. With the elimination of the Basic plan, the price gap between ad-supported and ad-free viewing has increased significantly from $3 to $8.50 monthly. This move might lead more new subscribers to opt for ad-supported viewing due to the cost difference.

Additionally, Netflix’s crackdown on password sharing during June and July 2023 could have also impacted its subscriber base. Free viewers who were previously enjoying content outside of the subscriber’s home are now more likely to sign up for their accounts. For these price-conscious users, the cheaper ad-supported tier could become an appealing option.

However, the trend of traditionally ad-free services attracting more ad-free subscribers might continue to prevail. Peacock’s decision to close the free ad-supported tier to new users. However, they still allow existing subscribers of the free ad-supported to continue using it. This suggests that companies are recognizing the importance of retaining ad-free subscribers.

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