In today’s dynamic world of streaming, the onus is on media players to understand not only how audiences perceive the ad, but also react to the ad breaks that surround and often interrupt their programs. Media owners must provide quality viewing experiences for consumers while creating a fertile ground for brand messages.

To this end, I outlined in a previous article that for all parties to benefit, ads should add to the viewer experience – not detract from it. In this follow-up piece, I will explore the factors that cause low-quality ad experiences and explain how content owners and distributors can avoid them. 

The importance of quality ad experiences 

Content of all types, from blockbuster movies to live sports, drama to documentaries, is increasingly being consumed and distributed via streaming platforms. This is largely a direct response to the evolution of consumer habits, with audiences satiating their huge appetite for premium video content across multiple connected devices. 

While subscription video-on-demand (SVOD) streaming services have proved popular, it’s currently the ad-supported tiers that are really capturing the attention of viewers. According to EMARKETER projections, free ad-supported streaming TV (FAST) sign-ups are increasing in the US, while the picture in the UK is equally promising for FAST, where Digital TV Research showed a 30% increase in viewership in 2023. 

Media owners need to be conscious of protecting the viewer experience in their ad-supported tiers, which includes the advertising experience. Platforms also want to create an environment that enables a premium and effective ad experience for advertisers. The generalist assumption that viewers don’t like ads but reluctantly put up with them to access content for free isn’t borne out by the data. FreeWheel Viewers Experience Lab’s report, Improving the Quality of Ad Experiences, shows that it’s not ads that bother viewers, but low-quality ad experiences.  

Seeking seamless viewing 

Audiences are receptive to the idea of a value exchange, involving watching ads to access quality content for free. With the increasing cost of living affecting European and UK consumers in recent years, many have been cutting down on subscription-based services and are looking for alternatives that offer better value. 

Moreover, the FreeWheel study shows that ads don’t impact the level of enjoyment of video content. In fact, a well-designed ad break, with frequency capping and length consistency settings, can give viewers a welcome rest and curb negative emotions, while improving cognitive attention and brand impact. 

It is the poor ad experiences that are frustrating for audiences. Data shows that 78% of consumers are bothered by slow-loading or buffering ads, while 71% are upset by ad breaks that unnaturally interrupt the content. One-third were also bothered by seeing a blank screen or screensaver in place of an ad. 

There are three areas that need careful attention in order to mitigate these issues: 

1. Latency 

Latency occurs when ad loading time is delayed by ad decisioning not happening quickly enough. The result is slow-loading or buffering ads, and these can be particularly disruptive for live streaming events, when the process of ad decisioning becomes more complex. 

Viewers in FreeWheel’s study rated programming that suffered from latency issues lower than programming that was not affected by latency. This sentiment was carried over into viewer perception of the ads themselves; latency has a direct impact on how a brand is perceived. 

Brands that want to avoid dented consumer perception from latency issues should look to suppliers that have technology in place that can optimize video delivery, ensuring delays are minimized. This could involve using ad servers located geographically closer to the end user. It might also mean buying directly from preferred partners to maximize efficiency in the supply chain; and ensuring partners have unified decisioning capabilities across all demand to enable faster ad decisioning. 

2. Disruption 

Poorly-timed or disruptive ad breaks can harm brand recall, according to FreeWheel’s study. Introducing ads in the middle of a scene, for example, will upset the natural flow of the programming. Respondents said that ad breaks were 16% more intrusive when they appeared at unexpected moments; they were also 14% less likely to remember the ads they saw during a disruptive ad break.  

Marketers will need to consider taking steps to mitigate any potential negative impact on their brands arising from this issue. One way to do so is by prioritizing publishers that use innovative and advanced technologies for advertising management, which can intelligently place ad breaks within content. 

3. Slate 

A slate or blank screen can appear when an ad call is made and the exchange doesn’t reply in time or provides an empty VAST (Video Ad Serving Template) response. According to our research, up to a quarter of ad avails are not filled on FAST channels, which all results in wasted inventory and frustrated viewers. 

FreeWheel’s data shows that consumers are more likely to have a positive physiological response to content when they don’t encounter slates. Using facial coding as a measure, viewers were 31% more likely to experience joy when watching a program with no slates. 

Brands should focus on supply path optimization and establishing direct connections to publishers and their inventory to limit potential slate issues. 

Additionally, from a publisher’s point of view, ad servers that utilize advanced auction capabilities, full pod bidding, and creative pre-approval processes, will help to limit latency and slate issues while improving fill rates.

Fixing the advertising experience is vital to drive streaming innovation

Buyers and sellers have to get to grips with how variations in the advertising experience can impact viewers and brand perception. With the increasing number of ad-supported tiers and growth in the volume of content available, prioritizing the viewer experience is key.  

Both brands and media owners have a role to play in this. Brands need certainty that the ad experience will be of the highest quality. Media owners must understand the factors that lead to sub-optimal ad experiences and how to fix them. In this multi-screen landscape, where consumer attention is scarce, it is paramount to come together to deliver an optimum experience that delivers the highest results. 

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Normalization of ad-supported TV

Economic pressures and budget constraints push viewers to seek more affordable entertainment options. Hub’s findings show that the percentage of consumers who express an aversion to ads fell from 17% three years ago to just 12% in June 2024. This decline in ad intolerance suggests that viewers are becoming more open to advertisements to reduce their overall entertainment expenses.

While viewers are becoming more accepting of ads, the presentation of the ads plays a crucial role in the quality of their overall viewing experience. Hub’s study underscores that the ad experience significantly impacts viewer satisfaction and engagement. The number and length of ad breaks influence how reasonable viewers find the ad experience.

Ad-supported video-on-demand (AVOD) platforms offer lighter ad loads and a more favorable overall ad experience than free ad-supported streaming TV (FAST) services and traditional multichannel subscriptions. Nearly eight in 10 viewers agree that there are “big differences” in the amount of advertising presented on competing TV services. This perception highlights the importance of managing ad loads to enhance viewer satisfaction.

Amazon prime video’s impact on the ad landscape

The introduction of ads on Amazon Prime Video has had a notable impact on the streaming landscape. Once a stronghold of ad-free content, Amazon Prime Video now includes ads by default. This change significantly reduces the proportion of viewers using ad-free streaming services to just three in five households.

Most Prime Video viewers now watch with ads. Only those who use Amazon as a hub for other subscriptions or consider Prime Video a primary benefit of their membership opt for the ad-free experience. This shift highlights ads’ growing acceptance among viewers and the influence of major streaming platforms in shaping consumer preferences.

Role of content in attention to ads

Interestingly, the type of content viewers watch also affects their attention to ads. Participatory genres like talk shows, game shows, competition series, and mystery programs keep viewers more engaged during ad breaks. Certain content types can be more conducive to maintaining viewer attention, even when interrupted by ads.

Opportunities for growth in ad-supported offerings

Despite the increasing acceptance of ad-supported streaming, there is still significant potential for growth in this area. The study reveals that many viewers remain unaware of ad-supported offerings on major streaming services such as Disney+, Paramount+, Max, and Discovery+. Additionally, a significant minority believe these services are strictly ad-free.

This gap in awareness presents an opportunity for streaming platforms to educate consumers about their ad-supported tiers. Targeted marketing messages aimed at budget-conscious non-subscribers could help drive growth in these offerings. Providing viewers with more affordable options and expanding the reach of ad-supported streaming appears to be a win-win scenario.

The report findings indicate a strong future for the streaming advertising marketplace. As consumers continue to embrace ad-supported streaming to save on subscription costs, the demand for well-executed ad experiences will grow. Streaming services offering reasonable ad loads and shorter breaks will likely see better viewer attention and engagement outcomes. Understanding and catering to viewer preferences is crucial as the streaming industry evolves.

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This sentiment underscores a growing trend toward prioritizing affordability without sacrificing the viewing experience. In addition, 62% prefer free, ad-supported streaming over paid subscriptions. New research, The Stream 2024, sponsored by Tubi, examines the streaming surge and reflects a fundamental shift in how people consume content. These days, convenience and flexibility take precedence over traditional television viewing.

Further, on-demand streaming services are the new norm in entertainment consumption. As households cut the cord to traditional cable subscriptions, streaming services are now integral to daily life for millions. From disrupting the sports-streaming landscape to championing representation and diversity in content, millennials and Gen Z are at the forefront of this cultural shift. However, as these demographics grapple with financial constraints, they are increasingly reevaluating their relationship with streaming services.

Viewers’ advertising preferences

Consumers viewing ad-supported streaming services ad preference:

• Like those on TV, standard ad breaks are strategically inserted at convenient plot point breaks within an episode or film (35%). They provide a fitting pause that harmonizes with the content’s flow. 
• Personalized ads that align with consumer interests and viewing journeys offer an enhanced experience. Most viewers (67%) prefer ads relevant to their streaming content, while 29% appreciate targeted ads tailored to their preferences.
• A notable 35% of audiences embrace quirky or unconventional ads for an added dose of enjoyment: Surprise and delight viewers with the unexpected.

Budget constraints and content preferences

While the attraction of streaming is undeniable, viewers are increasingly mindful of their spending habits. With subscription costs rivaling traditional pay TV services, price sensitivity is rising, particularly among younger audiences. Consequently, many are reassessing their streaming habits, with 27% admitting to using more services than they plan to in the future.

Moreover, viewers crave variety and fresh content. Their preferences lean towards a vast selection of shows and movies (69%) and new or original content (61%). As such, there is a growing demand for tailored content experiences that cater to diverse tastes and preferences.

Streaming adapts to evolving trends

This report suggests that ad-supported freemium models are poised to play a pivotal role in shaping the future of content consumption. By offering a blend of quality content and reasonable spending options, platforms can cater to consumers’ evolving needs while presenting compelling opportunities for marketers. Notably, the future of ad-supported services relies on a holistic viewer journey where ads amp up rather than interrupt the narrative.

Tubi’s research also suggests that integrating artificial intelligence (AI) holds immense promise in enhancing content discovery and personalization, addressing viewers’ dissatisfaction with current recommendation algorithms. As technology, tastes, and behaviors evolve, the onus is on streaming platforms to anticipate and adapt to shifting trends, delivering engaging narratives and seamless viewing experiences.

Streaming quality time and self-care

Streaming has taken on a role beyond entertainment, fostering a role in human connection and personal empowerment. For many, streaming represents an opportunity to bond with loved ones, with 71% of viewers citing it as a form of quality time spent with family or friends. Moreover, many view streaming is a form of self-care, with 68% of individuals leveraging it to carve out precious alone time in their hectic schedules.

The rise of on-demand streaming represents a paradigm shift in how audiences consume and engage with content. As streaming services continue to develop, understanding and adapting to evolving viewer preferences and market dynamics is essential for both platforms and marketers. Streaming platforms can shape meaningful connections with audiences by embracing innovation, diversity, and affordability.

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When we talk about television, what we mean by “TV” can vary dramatically, depending on geography, distribution service, device and – increasingly – the type of content being viewed. These variations are critical to understanding opportunities in this space. For the purposes of our discussion here, “TV” includes but is not limited to: 

• Over-the-air (OTA) broadcast channels
• Cable & satellite-delivered channel
• +s
• FAST channels
• SVOD services

All of the above may be accessed on mobile devices, laptops/desktops, and connected TVs. They are the primary (and most lucrative) content delivery formats for both traditional and new content creators and aggregators, who are most likely to be interested in our analysis. 

A key component of the challenges now faced by media companies is a false assumption that “one size fits all.” As we explore the strategic complexity of the streaming television market, compounded by the acceleration of AI integrations, taking a “one size fits all” approach is particularly risky.

Instead, each media company must clearly evaluate and understand its strengths and core competencies, and what these mean when moving in a new direction. In order to remain viable, it is imperative media players have the confidence to try new tactics. And, to truly innovate, they also need to get comfortable with the possibility of failure (as the tech industry has been).

The five key strategic questions

As they decide their next steps, media executives should be focused on five key long-term strategic questions:

1. How can you prepare your media business for success and survival in a rapidly-changing, highly competitive environment?
2. How can you attract and retain talent?
3. How can you serve your current customers and acquire new customers?
4. How can you grow revenue and profitability, sustainably?
5. And, finally, what exactly is your end goal?

Streaming lessons the United States and Europe can learn from each other

What we present below are six key – deliberately brief – lessons that U.S. and European media companies can learn from each other as they develop and evolve their offerings in the global streaming TV marketplace.

Lesson #1: Ask the right questions

The number one lesson that European media companies can learn from the U.S. is that many major media companies neglected to ask those five questions soon enough. That particularly seems the case when it comes to the last question: The strategies of most of the major U.S.-based streaming companies seem to lack a clearly defined end goal. But the good news is that it’s not too late. In fact, late movers have an opportunity to learn key lessons from the U.S. streaming market and thus serve viewers more effectively.

Lesson #2: Understand the market

One of the major mistakes that the mainly U.S.-based SVOD streaming services made (at least up to now) was the assumption that the world looked like the United States and would act the same way. A study of the history of the U.S. and European television markets would have made it clear that, when it came to paying for television, both markets had fundamentally different characteristics.

For example, Americans are used to paying $100 or more for their television, Europeans are not. Also, European pay-tv penetration has typically been 30 to 40% lower than the U.S. (even lower in some markets). Europeans prefer national language content and use free to air content more. When it comes to streaming, both sides need to first understand the structure of their markets and then work out what solutions work best.

Lesson #3: Media tech is a long-term investment

Technology has forever changed the game for media, and every player in the content value chain needs to become tech-savvy. This means continuously educating oneself – and one’s team – on new developments in technology. AI is a perfect example of a technology that has already impacted media (and will continue to do so). And yet, many major media players still think that AI is something for their tech department or even a new “Chief AI Officer” to manage rather than something about which they personally need to invest time learning and educating their entire teams about.

It’s imperative to everyone in a media company – senior or junior – to understand how mass market consumers connect using technology. For example, have they experimented with writing a ChatGPT or Midjourney prompt? Have they recently visited Walmart, Best Buy or Amazon to learn how most consumers purchase a TV, and thus come to have built-in, bundled access to their products? Do they have TikTok accounts? YouTube, Facebook, Instagram, Twitter, or even LinkedIn? And so on. Technology is a constantly evolving space, both in terms of innovation and consumer behavior. Staying connected to these changes will allow media leaders to make better short-term decisions and long-term investments in their business.

Lesson #4: Do what you do best

When faced with the dominance of Netflix, instead of doing what they did best, many U.S. media companies simply tried to do what Netflix did – but not as well. This approach hasn’t made a significant dent in Netflix’s market dominance, which is measured as present in two thirds of U.S. households, according to Kantar, with 49% in 2023 viewing it as their most important streaming service.

While this short-term strategy has floundered, the top U.S. media companies have a) strong, resilient brands, b) expertise in creating world-class content and content pipelines and c) the best deal-making skills Hollywood can teach. So, their potential remains strong. The same holds true for European media players. If you aren’t U.S.-based, don’t assume that your media company should follow the same strategies as the U.S.-based media giants. Nobody wants or expects your company to be the next Netflix. Instead, your company should be the next version of itself.

Lesson #5 – Don’t lose sight of the bigger picture

CEOs and corporate boards face a multitude of pressures when it comes to decision making. They must actually run their companies and navigate continually changing sectors and wider trends. And, in most cases, they must do so under the scrutiny of shareholders who have a multitude of short and long-term interests. What management must not do is panic.

For European companies, one area this particularly relates to is the treatment of linear television. There is no doubt that linear television faces challenges, yet European executives must also be wary of writing off the medium. While viewing for “traditional” television in the U.S. hovers just above 50%, linear television programs still dominate the schedules in virtually all major European countries. That reflects both the history of how television developed in these respective markets and the demographics involved. Linear can still be a powerful tool for advertisers in Europe in a way that is becoming increasingly challenged in the United States.

Lesson #6: Be humble

Media executives must not fall into the trap of thinking that, just because they view the world in a certain way, then that will be representative across the population of their market, much less the globe. That kind of thinking can lead to severe business consequences. It is good business sense to recognize you do not know everything and act accordingly. If there is one lesson that can be said to be applied equally across both Europe and the United States, it is this one.

The bottom line

The bottom line is that whether European or U.S.-based, media companies are not in need of a one-time strategy implementation or new product launch. As our six lessons illustrate, these companies need flexibility of thought and to be prepared to accept the realities on the ground, instead of implementing “one-size fits all” strategies. As we move into a new phase of hybrid traditional TV-streaming business models and assess how to integrate AI, this is particularly important to keep front of mind.

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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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Seven in 10 UK marketers believe their advanced TV budgets will increase in the coming 12 months, according to the latest survey from AudienceXpress, FreeWheel’s premium video sales house. What’s more, almost nine in 10 respondents intend to spend more on AVOD and FAST.

Ad buyers are investing in the channels where the eyeballs are. But now the industry must go a step further and truly think as audiences do. Content, quality, and connectivity appear to be front of mind for viewers. So, how can marketers also make these a priority?

Audiences only have eyes for content, so ad buyers should too

When viewers tune in to TV and premium video content, they can now access it through a diverse selection of platforms, channels, and devices. The fact that audiences have become more and more fragmented proves that what they watch is significantly more important than how they watch it. 

If ad buyers plan to succeed in the TV advertising landscape, they need to adopt this attitude. By taking a unified approach to advanced TV and premium video, they can shift their focus away from fragmented endpoints and towards what matters most: the audience and what they enjoy watching. To help buyers achieve this, the advertising ecosystem is refining its tools for unified campaign planning, ad buying, and performance measurement. 

New technologies and best practices, such as ad podding, are improving both efficiencies for buyers and the premium video experience for viewers. Advanced contextual advertising, meanwhile, is allowing buyers to connect with audiences through specific topics and genres, as well as combine semantic analysis and keyword targeting to maximize ad relevance. 

While further collaboration is required to accelerate this progress, advanced TV is enabling advertisers to engage typically hard-to-reach audiences through quality content.

Why aggregation is the answer to precise ad targeting

The key drivers of advanced TV spend emphasize marketers’ goal of reaching the best viewers however they consume TV and premium video content. Our AudienceXpress survey found that respondents considered sophisticated audience targeting capabilities as the top growth accelerator for advanced TV, followed by the opportunity to reach viewers across screens. 

Enabling precise ad targeting and allowing buyers to be agile as their audiences move between platforms and devices are therefore highly important for capturing investment. While it may seem paradoxical, aggregation is necessary for this to happen. By aggregating a bigger pool of premium video inventory, the advertising ecosystem can facilitate efficient, streamlined ad buying and deliver desired audiences at scale. 

This again requires buyers and sellers to treat advanced TV channels as viewers do—that is, equally—as they unify their approach to TV advertising. 

Joining the measurement dots

Consolidating measurement across endpoints is as critical to the future of TV advertising as consolidating inventory and audiences. Buyers need a single view of how impactful their ad campaigns are, both while they are running and after they are wrapped up, much like any great TV show. 

Unfortunately, legacy measurement tools and newer alternatives currently struggle with capturing performance across screens and providing ad buyers with a full understanding of campaign impact. Buyers need this to pinpoint the elements of their strategies that are generating the best results and carry out informed campaign optimizations. Additionally, accurate measurement solutions are necessary for effective frequency management, which safeguards against ad fatigue and maintains the quality viewing experience for audiences. 

Greater standardization of advertising metrics is a crucial next step towards unifying measurement. This provides clarity between buyers and sellers, allowing the former to plan, purchase, and optimize all forms of TV inventory and the latter to better communicate the value of their offerings. 

Connectivity will solve complexity 

Speaking the same language across the ecosystem also lays the foundation for better interconnectivity between all players. In turn, this will help tackle complexity, which has become a concern in the rapidly evolving advanced TV landscape. 

Alongside building a shared language, interoperability must be a priority in the year ahead. Technological innovation is critical for overcoming the challenges buyers face with planning, executing, and monitoring advanced TV campaigns. But ensuring these innovative solutions are widely compatible will help make TV and premium video advertising available to all. This will drive growth and progress throughout the ecosystem, letting buyers purchase from bigger pools of aggregated inventory, increase efficiency, and extend their reach, while also allowing publishers to streamline their advertising business models and maximize yield. 

Connectivity is enabling viewers to consume TV and premium video content how they want, when they want. It is also the key to enabling ad buyers to purchase the inventory they want, how they want. Not only is this beneficial to the future of advanced TV advertising, but also to audiences by ensuring they receive the most relevant ads and a quality viewing experience.

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Digital Content Next (DCN) partnered with Magid to uncover insights on how the streaming market is developing and to take advantage of the growth in AVOD and FAST. DCN’s new report, The Rise of and Best Practices for AVOD/FAST, exclusive to DCN members, focuses on FAST and the recent consumer response to these services. The report provides thought leadership and best practices for media brands looking to develop and expand a FAST business model.

The methodology includes:

1. Qualitative interviews with a subset of senior executives from DCN member organizations and secondary research to provide a competitive analysis, content and monetization strategies, distribution plans, and platform partnerships.
2. Quantitative survey analysis utilizing Magid’s proprietary Video Entertainment Study (VES) to offer consumer tracking, segmentation, and forecasting models in the AVOD and FAST marketplace.

Growth of AVOD/FAST

A post-pandemic mindset and rising inflation are changing consumer attitudes and needs. We see consumers leaning towards FAST services as they become more mindful of their budgets and cut their pay TV cords.

According to Magid’s proprietary data, 82% of U.S. households consume subscription video-on-demand (SVOD) and have at least one paid streaming service. While the growth in SVOD is near saturation, AVOD and FAST channels on streaming services are growing even faster. Since 2019, AVOD/FAST grew by 55% compared to 28% for SVOD. In fact, most Americans (62%) now report using at least one AVOD or FAST service as subscribers or viewers. 

AVOD/FAST is now the second most common platform for viewing professional video content among those under 50 and the highest among millennials. The usage growth among 13-24-year-olds is even more pronounced (+15% points since 2020). Media brands must pay attention to the viewing habits of Gen Z, the largest generation, as they mature in the marketplace.

The intention to cut the cord accelerated in 2021 (36% growth among 18–64-year-olds and 70% among 18-34-year-olds between March 2021 and December 2021) and is driving the growth of CTV devices in the home. 

Ad market and business opportunities

According to Variety, the forecast for the advertising revenue of FAST channels in the U.S. will total more than $6.0 billion dollars by 2025. This marks an increase of about $3.0 billion dollars compared with the estimate in 2022. Furthermore, nScreenMedia forecasts that the average CPM will also increase from $14 in 2022 to $18 in 2024 due to targeting and advertiser competition for inventory.

In an increasingly “platform agnostic” world, an important way for media brands to boost relevance is by being omnipresent. Today’s consumers do not care where they get the content they want. AVOD and FAST offer an opportunity to reach untapped audiences and to meet different audiences “where they are.” The growth of AVOD and FAST is creating a bigger pie rather than dividing the pie into narrower slices. Senior executives at DCN member organizations believe AVOD and FAST are more additive than cannibalistic.

AVOD and FAST are growing in audience and influence because they offer affordable and appealing options for consumers to access a wide range of content without paying for a subscription. DCN’s The Rise of and Best Practices for AVOD/FAST identifies essential strategies for media brands to navigate at the forefront of this significant shift in the current video distribution space.

Full research report for DCN members only. Register to download. The link will appear immediately below. If you’ve already registered, the login button is on the top right of the page.

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All demographics prefer lower cost options

Recent Morning Consult survey results confirm that both Gen X and Gen Z adults decidedly prefer ad-supported content, with 59% of both groups indicating that preference over higher priced content. Baby boomers and Millennials concurred, with 61% of Baby boomers and 51% of Millennials stating the same preference.

Gen Z adults tend to be the most cost-averse when it comes to monthly subscription fees, according to the Morning Consult poll. Only 16% of the Gen Z adults surveyed spend more than $30 a month on streaming services, compared to 31% of Millennials.

New free and low cost ad-supported offerings are sprouting up quickly. Major platforms like Disney, Netflix, and HBO Max that have long been ad-free are now adding- or actively planning to add- more affordable ad-supported tiers.

What might this mean for the future of video streaming?

• Cheaper bundles. More companies are likely to follow the lead of Paramount, which started offering Showtime bundles including both ad-supported and ad-free content. Less expensive bundles may attract more Gen Z consumers.
• Staggered releases. Companies may capitalize on the hype surrounding new releases of popular material by staggering the release of new content between ad-sponsored and premium subscription tiers.
• More long-term viewers. Because lifetime viewers peak within the first month of a new series release, this kind of staggered release could reap long-term increases in viewership.
• Shifting spending. Ad spending that might otherwise have gone to major social media platforms could instead be directed towards ad-supported streaming services, due to increasing concerns over user-generated content impacting brand image.
• Rising average revenue per user (ARPU) from ad-sponsored streaming may eventually surpass that of subscription tiers. Some companies are already reporting revenue from their ad-supported tiers exceeding that of their ad-free tiers.

Still, premium subscriptions will remain a linchpin for streaming services. While ad-supported tiers are rising in popularity, there remains a significant percentage of consumers who prefer the ad-free viewing option. And some consumers will join at a low-cost tier and later upgrade to premium versions. That said, premium streamers—even the once immutably premium Netflix—are reconsidering their options.

Trouble for Netflix?

With declining interest in higher-cost video streaming, it’s no wonder that Netflix has been losing subscribers, as reported by Digital News Daily, citing data from Antenna and Windstream.

• Overall cancellations rose to 3.6 million in the first quarter of 2022, compared to about 2.5 million in each of the past five quarters, according to data from Antenna.
• Short term subscribers (under a year) accounted for 70% of cancellations in the first quarter of 2021, but just 60% in the first quarter of 2022, indicating that more long-term subscribers are leaving the platform.

Customers’ unhappiness with recent price increases as well as perceived decline in the quality of content are driving cancellations, according to a survey of 1,000 Americans by Windstream:

• 39% of customers cited unhappiness with the latest price increase, which drove the Netflix standard plan cost to the industry’s highest.
• 35% of customers cited declining quality of content.

Among the 23% who reported having cancelled their Netflix subscriptions, 35% reported switching to Hulu, 22% to Amazon Prime, and 11% to HBO Max. It seems significant that the largest share of those defectors went to Hulu, which has long offered a low-cost, ad-supported tier.

Reassuring news for Netflix

But even with these rumbles of discontent clouding the forecast, Windstream’s survey indicated customers still have overall positive opinions about Netflix:

• 40% of all respondents named Netflix as their favorite streaming service.
• 63% of subscribers report they still enjoy Netflix content options.
• 74% of subscribers said they plan to stick with Netflix, even if the provider enacts measures to suppress password sharing (26% said they would drop Netflix if that happened).

Winds of change

Despite its continued popularity among consumers, the company faces stalled subscriber numbers and a need to create new revenue streams. Thus, it is no surprise that Netflix plans to launch a lower-priced ad-supported tier by the end of 2022, according to information obtained by The New York Times. They will join other previously premium-only streamers HBO Max, which launched an ad-supported tier in June 2021, and Disney +, which announced plans to release an ad tier for its service later this year.

The appeal of premium content environments to advertisers is clear. So is the wisdom of revenue diversification in the media business. Undoubtedly, certain consumers will remain willing to pay for ad-free options. But the ability to attract new audiences and ad revenue bolsters long-term prospects for tiered offerings in the streaming industry.

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In collaboration with market research company Happydemics, FreeWheel surveyed CTV viewers across the UK, Italy, France, Germany, Spain, and the Netherlands (the “EU6”) to understand their preferences and how advertisers can tap into the connected audience.

Smart TV tops connection methods

The popularity and convenience of Smart TVs has led them to be the primary method of connecting to internet video throughout the EU6, with one notable exception. In France — where telco and pay TV operators have held strong — set-top boxes are the favored connection method, used by 72% of the French CTV viewers surveyed. On the other end of the scale, our study found that 86% of CTV viewers in Italy connect via Smart TVs, well above the EU6 average of 60%.

The popularity of premium and ad-supported options

As for what they watch once they are connected, long-form premium video content reigns supreme, with the majority (59%) of respondents using at least one subscription video on demand (SVOD) service. On average, EU6 CTV viewers surveyed spread their attention across 3.5 different streaming platforms, including SVOD, ad-supported video on demand (AVOD), broadcaster video on demand (BVOD) and live TV, showing that consumers are willing to switch between apps to find what they want.

However, when it comes to SVOD, there may be a point at which viewers reach “subscription saturation.” In fact, free ad supported tv services (FAST) are gaining in popularity. According to the survey, free streaming platforms, such as Pluto.TV and Molotov TV, see the highest uptake among viewers who subscribe to multiple paid services.

AVOD users come for the price, stay for the content

As SVOD giants Netflix and Disney+ tease their ad-supported tiers, EU6 CTV viewers surveyed are warming up to AVOD, with adoption by our connected respondents nearing two-fifths (38%). Consumers seem content with the trade-off of watching ads in exchange for content. In fact, 60% of these users said that free access was, unsurprisingly, the biggest appeal of such services. However, more than a third (36%) were won over by the variety and quality of content on offer.

With no cost barrier, we might expect audiences to dip in and out of AVOD. But those who try it tend to stick around, with over two-thirds of CTV viewers surveyed (68%) accessing ad-supported video every week, half of whom do so daily. AVOD appears to slip seamlessly into viewing schedules. This bodes well for platforms big and small exploring this new frontier of content monetization.

Big-screen ads grab attention best

Advertisers seeking to capitalize on CTV will be reassured to know that TV ad experience is considered the most effective by the vast majority (64%) of EU6 CTV viewers surveyed, with little variation between regions. In the age of distraction, attention-grabbing, big-screen ads provide an opportunity to maximize campaign impact.

One advantage of CTV is the ability to personalize ads for the viewer, and EU6 respondents were generally receptive to this. When asked which type of personalization they prefer: 37% chose ads related to their personal interests, 30% related to their lifestyle, and 23% for brands or products in line with their values, such as sustainability. While the EU6 CTV audience is accepting of ad personalization, they are not accepting of their personal data being used to achieve it, as stated by 62% of respondents.

Time to unlock CTV ad potential

Advertisers go where their audiences are, and in the EU6 countries they can be found enjoying premium video streamed via Connected TV. So, there is real potential to harness CTV platforms for campaigns, particularly when you look at the apparent shift of bigger SVOD players towards ad-supported models and concerns over subscription fatigue.

Normalizing AVOD should be good for viewers, platforms, and advertisers alike. Viewers get to try content with no upfront cost, while content platforms can compete on quality rather than price. Advertisers, meanwhile, would be able to target their ad spend and creative to key demographics, while having the potential to reach new audiences; all thanks to CTV’s “superpower” – the ability to combine the best attributes of TV and digital video in one place.

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But here’s the good news about these rapid changes: While the “Streaming Wars” narrative — referring primarily to competition among media giants’ SVOD strategies — remains the focus of many in the business and trade press, the reality is that there are wide-open opportunities for a variety of players. Whether it’s a paid app, a YouTube channel, or a free channel on a FAST service, streaming is definitely not confined to the players locked in the so-called streaming wars. Streaming is for everyone.

We’re just getting started

SVOD, AVOD, FAST, OTT, and CTV are not only competing, overlapping, and complementary acronyms — they represent multiple potential business models as well as multiple avenues to reach audiences looking for entertainment, news, and sports. Across devices, services, and platforms, there are more opportunities than ever before to develop content, products and business models contributing to the next evolution of the streaming industry.

Media players and startups — large and small — can compete and win the loyalty and trust of consumers. By the end of 2022, we will see new players on the streaming scene — growing, thriving, and innovating to capture audience attention and significant revenue opportunities.

Find your place in streaming

The fact is, it remains early days for streaming viewership, and we need bold players to bring expertise and creativity to the space. So let’s set aside the winners-take-most Streaming Wars narrative and consider these factors:

1. Focus on the right video strategy for your audience.

In the streaming space, many strategies and tactics are still in an experimental stage, so don’t assume that your traditional competitor’s widely-publicized strategy is going to work. And definitely do not copy their strategy without significant research and diligence, because you may find that your competitor doesn’t have a clue — and won’t provide significant competition at all in the streaming space. For instance, it may be that launching a solid AVOD or FAST strategy will give you much of the data you need to make a decision about an SVOD strategy.

2. It’s easier and less expensive than you think to get started.

There are new technologies and new tech companies that can support a variety of streaming strategies. Generally speaking, these options are less expensive, more standardized and faster to implement than many broadcast technologies. Additionally, trusted brands will be in a good place to negotiate with these vendors.

3. Creativity and innovation are badly needed in the streaming space.

Think about how hard it is — still — to navigate streaming interfaces. This space needs to improve the consumer experience, ASAP. With so many major media brands in flux, those who are focused on making streaming a great consumer experience have an incredible chance to jump in and create a successful strategy.

Focus on the consumer to improve what’s ahead

The complexity of the streaming landscape is enough to confound savvy media veterans and newcomers alike. But this complexity should not prevent most media players from crafting or revamping their streaming strategy – now. It’s a wide-open field for trusted brands and innovators, especially those who create content, products and services with viewers at the center. We all have a lot to learn from rapidly shifting consumer habits and preferences, and the timing has never been better to start learning.

About the author

Christy Tanner, President of Tanner Media LLC, is former EVP & GM of CBS Interactive, where she built CBS News Digital/CBSN into the #1 streaming news service, with more than 1 billion streams in 2020 and 2021.

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