This film still released by Universal Pictures shows Mark Wahlberg, left, with the character of Ted, voiced by Seth MacFarlane in a scene from “Ted.” (AP Photo/Universal Pictures)
Photo credit: Universal Pictures/Tippett Studio
After spending years amassing streaming subscribers at great expense, media companies now need to make a profit. And they are increasingly relying on advertising as an answer.
Look no further for proof that the most recent annual Upfronts, the events where media companies love Fox Corporation., Warner Bros Discovery, disney and Comcast NBCUniversalmade their presentations to advertisers.
In the absence of stars and talent due to the ongoing Hollywood writers’ strike, NBCUniversal kicked off its event with an animated video of Ted, the rude teddy bear created by Seth MacFarlane who landed a series on the company’s Peacock streaming service, singing and dancing to a tune that included the chorus “We need commercials.”
“We were all dreamers to think streamers were anything but fads,” the animated teddy bear sang to the audience. “Now we were all begging for ads.”
The ad spurt comes not only when subscriber growth slows and customers move in and out of services – commonly referred to as churn in the media industry – but the ad market has softened and been slow to recover. .
During Disney’s earnings call earlier this month, CEO Bob Iger emphasized ad-supported streaming. And Paramount Global and NBCUniversal boasted that they had cheaper ad tiers from the start. Warner Bros. Discovery has also added such options for consumers.
“Despite the short-term macro headwinds in the overall market today, 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 netflixwhich had been against advertising for years, entered the game. The 800-pound gorilla in the streaming room held a virtual presentation for advertisers for the first time last week, revealing information on its level funded by publicity that boosted its stock.
Still, it’s still early in the game, and it’s unclear whether advertising will fill the gaps in unstable subscriber growth for streaming.
“We need ads”
There has been an increase in the number of consumers signing up for ad-supported streaming subscriptions. In the United States, they rose nearly 25% year-on-year to 55.2 million in the first quarter of this year, from 44.3 million the year before, according to data firm Antenna. . Growth in ad-supported levels also increased last year. Ad-supported plan tiers accounted for 32% of enrollments in 2022, up from 18% in 2020.
When Netflix said it lost subscribers early last year, it sent the streaming world into a spiral, weighing on stock prices and pushing executives to find other ways to generate revenue. By the end of the year, Netflix had launched a cheaper, ad-supported tier. Rival Disney+ did the same.
Media companies are returning to the original business models that have long sustained their businesses – generating revenue from content in multiple ways rather than relying on a single route, a subscription business.
Netflix, while noting that it was still “in its early stages”, said this week that it had 5 million monthly active users for its cheaper ad-supported option and that 25% of its new subscribers enrolled at the level in areas where it is available.
But media companies are wrestling with whether ad-level subscriptions make up for other losses.
“I don’t think we fully know that answer yet,” said Jonathan Miller, a former Hulu board member and current CEO of Integrated Media, which specializes in digital media investments. “But I think we will learn that a [subscription, ad-free] the customer who does not rotate will be the most valuable. There’s math to learn over time as the playing field settles.”
Disney, which is also the majority owner of Hulu, has the most ad-supported subscriptions, followed by Peacock, Paramount+, Warner Bros. Discovery – which soon merged Max and Discovery+ – and Netflix, according to Antenne. Hulu and Peacock are the two streamers with a majority of subscribers on ad-supported tiers, the data provider said.
Expressway
Another way to generate revenue for streaming companies is through free, ad-supported, or FAST channels.
The new streaming model is more like the previous TV model. FAST channels are like TV broadcasting; cheaper ad-supported streaming tiers akin to cable TV networks; and premium ad-free options are similar to HBO and Showtime.
“I see FAST as a replacement for the old syndication business. There are many ways to monetize TV,” said Bill Rouhana, CEO of Chicken soup for the entertainment of the soulwhich owns ad-supported streaming services including Crackle and Redbox, as well as FAST channels.
In this photo illustration the Paramount Global logo seen displayed on a smartphone screen.
Raphael Henrique | SOPA Pictures | Light flare | Getty Images
Free streaming services, which offer both a library of on-demand content and a curated channel guide, have seen explosive growth in recent years. Fox and Paramount acquired Tubi and Pluto, respectively, shortly before viewership increased. Agreements have become a badge of honor in corporate earnings calls.
For these large media companies, they have also become a place for their own libraries. Pluto shows previous episodes from the lucrative “Yellowstone” series, which also saw multiple spinoffs boost Paramount+.
“It’s really been the last year that we’ve seen a seismic shift,” said Adam Lewinson, Tubi’s Chief Content Officer. “With the overriding challenges in terms of the paid streaming model, and then subscription fatigue. This is where, in tougher economic times, people are looking more closely at their spending. On top of that, almost a streamer out of 3 cuts its streaming spend.”
For Fox, which focuses on sports and news on traditional television channels, Tubi is its answer to streaming. As CEO Lachlan Murdoch previously noted on an earnings call, Tubi was the focus of Fox’s Upfront presentation last week. The executives applauded Tubi for doing the streaming gauge report from measurement firm Nielsen for the first time recently.
Paramount also emphasized the growth of Pluto. At the company’s Upfront dinners with advertisers, Pluto has been a key part of the conversation, said David Lawenda, Paramount’s director of digital advertising.
Warner Bros. Discovery has announced its intention to create its own FAST channels. In the meantime, he pulled content from HBO Max and licensed it to Tubi and Roku.
“To also syndicate your content through FAST channels is probably the wisest thing to do. It could create strategic value in addition to money,” said Rouhana, of Chicken Soup for the Soul Entertainment. “In a world where churn is a fact, having the ability to re-show content from those lost subscribers and earn money doing it can only be good.”
Price verification
The companies are also raising streaming prices to make up for the losses. A combination of price increases and ad revenue is the projected path to profitability, Iger said during Disney’s earnings call earlier this month.
Executives from media companies such as Warner Bros. Discovery, Paramount and Disney have said in previous investor calls that there is still room to expand on ad-free streaming options.
During Disney’s earnings call, Iger said that while the company has no plans to raise prices for ad-supported customers, people who pay for ad-free content may find it difficult. expect an increase later this year.
Disney Executive Chairman Bob Iger attends the exclusive 100 Minute Preview of Peter Jackson’s The Beatles: Get Back at the El Capitan Theater on November 18, 2021 in Hollywood, California. (Photo by Charley Gallay/Getty Images for Disney)
Charley Gallay | Getty Images
“In the meantime, the pricing changes we have already implemented have proven successful, and we plan to price our ad-free tier higher later this year to better reflect the value of our ad-free offerings. content,” he said. “As we look to the future, we will continue to optimize our pricing model to reward loyalty and reduce churn, to increase revenue from subscribers for the ad-free premium tier, and to drive subscriber growth that offer the ad-supported option at a lower cost.”
HBO Max, Disney and Paramount have all hiked prices on their streaming services over the past year as consumers grapple with inflation of food and other essentials.
“It’s not clear to me that you can continue to raise prices on the subscription side given the nature of the macro economy,” Miller of Integrated Media said. “For me, it’s having the right combination of things that will optimize the business.”
Disclosure: CNBC is part of NBCUniversal, which is owned by Comcast.
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