This movie image released by Universal Pictures shows Mark Wahlberg, left behind with the character Ted, voiced by Seth MacFarlane in a scene from “Ted.” (AP Photo/Universal Images)
Photo credit: Universal Pictures/Tippett Studio
After years of accumulating streaming subscribers at great expense, media companies now need to make some profit. And they are leaning more and more on advertising as an answer.
Look no further for evidence of that than the most recent annual Upfronts, the events media companies love Fox Corp., Warner Bros. Discovery, disney and Comcast’s NBCUniversalmade their pitches to advertisers.
Lacking stars and talent due to the ongoing Hollywood writers’ strike, NBCUniversal kicked off the event with an animated video of Ted, the big-mouthed teddy bear created by Seth MacFarlane, who landed a series on the company’s Peacock streaming service, singing and dancing to a tune with the chorus “We need ads.”
“We were all dreamers to think the streamers were anything but fads,” the animated teddy bear sang to the audience. “Now we’re all begging for ads.”
The ad push comes not only because subscriber growth slows and customers drop in and out of services — commonly known as churn in the media business — but also because the ad market has softened and is slow to recover.
During Disney’s earnings call earlier this month, CEO Bob Iger put a new emphasis on ad-supported streaming. And Paramount Global and NBCUniversal have touted that they’ve had cheaper ad tiers since the beginning. Warner Bros. Discovery has also added such options for consumers.
“Despite the near-term macroeconomic headwinds of the current market, the advertising potential of this combined platform is incredibly exciting,” Iger said after announcing that Hulu content would join Disney+, a move that would be positive for advertisers .
Even Netflix, who opposed advertising for many years, came into play. The 800-pound gorilla in the streaming space held a virtual presentation for advertisers for the first time last week, revealing information about its ad-supported tier that boosted its stock.
Still, it’s early days in the game and it’s unclear whether ads will fill the gaps of unstable streaming subscriber growth.
‘We need advertisements’
There is an increase in the number of consumers signing up for ad-supported streaming subscriptions. In the US, they grew nearly 25% year over year to 55.2 million in the first quarter of this year from 44.3 million in the same period last year, according to data company Antenna. Growth in ad-supported tiers also picked up last year. Ad-supported subscription levels accounted for 32% signups in 2022, up from 18% in 2020.
When Netflix said it was losing subscribers earlier last year, it sent the streaming world into a spiral, weigh on stock prices and push executives to find other ways to generate income. By the end of the year, Netflix had launched a cheaper, ad-supported tier. Rival Disney+ did too.
Media companies are returning to the original business models that have long supported their company: monetize content in multiple ways rather than relying on one route, a subscription business.
While noting that it’s still in its infancy, Netflix this week said it had 5 million monthly active users for its cheaper, ad-supported option and 25% of its new subscribers were signing up for the tier in areas where it’s available. .
But media companies are grappling with whether ad-tier subscriptions will make up for other losses.
“I think we don’t quite know that answer yet,” said Jonathan Miller, a former board member of Hulu and current CEO of Integrated Media, which specializes in digital media investments. “But I think we’ll learn that a [subscription, ad-free] customer who does not drop out is the most valuable. There’s math that needs to be learned over time as the playing field settles down.”
Disney, which is also the majority owner of Hulu, has the largest number of ad-supported subscriptions, followed by Peacock, Paramount+, Warner Bros. Discovery — which has the soon-to-merge Max and Discovery+ — and Netflix, according to Antenna. Hulu and Peacock are the two streamers with a majority of subscribers at ad-supported levels, the data provider said.
FAST lane
Another way to fill streaming companies with revenue is through free, ad-supported, or FAST channels.
The new streaming model is more similar to the previous TV model. FAST channels are like broadcast TV; cheaper ad-supported streaming tiers are comparable to cable TV networks; and the premium, ad-free options are on par with HBO and Showtime.
“I see FAST as a replacement for the old syndication business. There are multiple ways to make money from television,” said Bill Rouhana, CEO of Chicken soup for the Soul Entertainmentwhich owns ad-supported streaming services, including Crackle and Redbox, as well as FAST channels.
In this photo illustration, the Paramount Global logo is displayed on a smartphone screen.
Rafael Henrique | SOPA Images | Rocket | Getty Images
Free streaming services, which offer both a library of on-demand content and a directory of curated channels, have experienced explosive growth in recent years. Fox and Paramount bought Tubi and Pluto, respectively, not long before viewership increased. The deals became a badge of honor in the companies’ earnings calls.
For these larger media companies, they have also become a place for their own libraries. Pluto shows previous episodes of the lucrative “Yellowstone” series, which has also seen multiple spin-offs that have boosted Paramount+.
“It was really in the last year that we saw a seismic shift,” said Adam Lewinson, Tubi’s chief content officer. “With the overarching challenges in terms of the payment streaming model and then subscription fatigue. This is where people are looking more closely at their spending in tougher economic times. In addition, almost 1 in 3 streamers are now reducing their streaming spending.”
For Fox, which focuses on sports and news on traditional TV channels, Tubi is the answer to streaming. As CEO Lachlan Murdoch previously noted in an earnings call, Tubi took center stage during Fox’s Upfront presentation last week. Executives applauded Tubi for recently producing metering company Nielsen’s streaming meter report for the first time ever.
Paramount has similarly highlighted Pluto’s growth. During the company’s Upfront dinners with advertisers, Pluto was a key part of the conversation, said David Lawenda, Paramount’s chief digital advertising officer.
Warner Bros. Discovery has said it has plans to create its own FAST channels. In the meantime, it has taken content from HBO Max and licensed it to Tubi and Roku.
“It’s probably wisest to syndicate your content through FAST channels as well. It can create strategic value beyond just cash,” says Rouhana of Chicken Soup for the Soul Entertainment. “In a world where churn is a fact, getting those lost subscribers back to content and making money can only be a good thing.”
Price control
Companies are also increasing streaming prices to make up for losses. A combination of price increases and ad revenue forms the planned path to profitability, Iger said during Disney’s earnings call earlier this month.
Executives at media companies, including Warner Bros. Discovery, Paramount and Disney have said in previous investor talks that there is still room to grow in terms of ad-free streaming options.
On the Disney earnings call, Iger said that while the company had no plans to raise prices for ad-supported customers, people who pay for ad-free content can expect an increase later this year.
Disney Executive Chairman Bob Iger attends the exclusive 100 minute sneak peek of Peter Jackson’s The Beatles: Get Back at El Capitan Theater on November 18, 2021 in Hollywood, California. (Photo by Charley Gallay/Getty Images for Disney)
Charley Gallay | Getty Images
“Meanwhile, the pricing changes we’ve already made have proven successful, and we plan to set a higher price for our ad-free tier later this year to better reflect the value of our content offerings,” he said. “Looking to the future, we will continue to optimize our pricing model to reward loyalty and reduce churn, to increase subscriber revenue for the premium ad-free tier and to drive growth in subscribers using the lower-cost ad-supported option. offer to encourage.”
HBO Max, Disney and Paramount have all raised the prices of their streaming services in the past year as consumers contend with inflation in food and other essential goods.
“It’s not clear to me that you can continue to increase prices on the subscription side given the nature of the macroeconomics,” said Integrated Media’s Miller. “For me, it’s the right combination of things that will optimize the business.”
Disclosure: CNBC is part of NBCUniversal, which is owned by Comcast.
