Wave bye-bye to ad-free streaming
• The admen have managed to worm their way back into a lucrative market they were excluded from
When streaming services such as Netflix first launched the platforms that have become ubiquitous sources of entertainment content for hundreds of millions of viewers around the world, one of their biggest selling points was the elimination of adverts from the home-viewing experience.
Unlike music service Spotify and free video hosting platform YouTube, which included ads in their basic or free packages and required users to subscribe or pay more for ad-free options, services such as Netflix offered entry-level packages that included the welcome promise of no adverts.
Now as Netflix and other services begin the rollout of their ad-tier packages as cheaper options for subscribers still hungry for content but looking to cut costs and willing to accept advertising back into their homes, the admen have managed to worm their way back into a lucrative market they had been shut out of.
With Amazon about to launch a new ad-included version of its Prime Video streaming service in the US at the end of January, the final unwelcome nail in the coffin of the era of ad-free television is about to be hammered in, and subscribers have little say in the matter and will have to pay more if they wish to have ads removed.
That’s because the corporate online commerce giant, which includes its streaming service as a free perk to all subscribers of its Prime delivery service, will be able to offer advertisers a 200-million user market.
It is betting most people, who already don’t pay extra for the streaming service, will continue to use it for free with ads, rather than pay more to have them removed.
It’s all part of a broader move in the streaming business to make up for the losses suffered postpandemic and incurred by the 2023 Hollywood strike, and to increase the productivity of what in many cases have been loss-making streaming offerings. One way is to open the doors to advertising revenue, increase the prices of streaming subscriptions and reduce spending on the creation of original content.
Amazon has promised in an email to subscribers that its ad-inclusive model will “have meaningfully fewer ads than ad-supported TV and other streaming TV providers”. But the truth is that because of its huge reach and dominance, the company can pretty much do whatever it likes and subscribers will end up having to go along with the new normal, even though it flies in the face of one of the basic promises originally sold to them as an incentive for signing up to Prime Video.
As a recent report in The Hollywood Reporter pointed out: “The move will instantly turn Amazon into a streaming-ad juggernaut, and the largest ad-supported subscription streaming platform in the marketplace with tens of millions of users, leapfrogging the likes of Netflix in the process.”
Though Amazon has been coy about the exact number of Prime subscribers, the latest estimate from 2021 puts it at “more than 200-million”, with 168-million of those signed up in the US alone. If only half that number were to use Prime Video with advertising, that would put Amazon ahead of Netflix (77-million subscribers in the US) and well above other streaming services such as Hulu and Peacock. All of which places Amazon in the position to generate significant profit from advertising revenue.
US analysts have estimated that Amazon stands to make $3bn from its switch to an ad-inclusive basic package and a further $5bn from users who are annoyed enough by the arrival of ads to pay extra for an ad-free option.
Analysts have bet that in most cases users, especially those who already receive Prime Video for free as part of their Amazon Prime subscription, won’t fork out the extra $3 to make the ads go away.
This will probably mean that, at least initially in the US, and not too far in the future for other markets, the landscape of ad spend in television could significantly change, with ad companies deciding to invest less in traditional linear TV spots and more in streaming platform adverts.
What remains certain after all these unwelcome shifts in attitudes to advertising from streaming platforms is that subscribers, rather than being in control of the future of streaming, are now just pawns in a game whose rules they have very little say in shaping or changing.
Amazon’s genius business strategy move has been to realise that rather than give us a choice and entice us to an ad-tier service with its promise that for suffering a few ads, we can still have tonnes of content at our fingertips for a lower, more household-budget-friendly rate — it will simply force us to accept ads and then make it more expensive for us to go back to our previous ad-free Edenic existence.
It’s not an original strategy but it piggybacks on that used for years by YouTube, which has long offered an ad-free subscriber option for users annoyed enough by the ad-infested free version to fork out extra money to escape it. YouTube is set to make $30bn from ad revenue in 2024 and that’s an attractive number to Amazon and the other streaming services looking to change their business model so that revenue justifies costs.
The first era of streaming, characterised by attempts by platforms to attract subscribers by any means necessary, looks set to be replaced by a new era in which the admen are the target. From the end of January, they’ll be making their unwelcome return to knock at your door. The only question is whether you’ll be willing to pay more money to Amazon to make them go away.
SUBSCRIBERS WILL END UP HAVING TO GO ALONG WITH THE NEW NORMAL