The Future of Streaming Will End in Tiers

February 21, 2024 FilmTake Streaming Comments Off on The Future of Streaming Will End in Tiers

Advertisers will not be deprived of their pound of flesh as subscribers flee traditional cable services for online streaming platforms that were once ad-free utopias.

Once considered less valuable, advertising-supported streaming services have gained momentum with the introduction of ad-supported tiers by Netflix and Disney+ in late 2022. Last month, Prime Video joined the trend, and there are even rumors circulating that Apple TV+ might venture into ad-supported streaming, particularly after recently doubling its monthly subscription price to $10.

Breaking News: Freevee Will Shutdown After Amazon Adamantly Denies Claims

Just five hours after Amazon adamantly denied claims on Wednesday that it was shutting down its stand-alone ad-supported service Freevee (rebranded from IMDb TV in April 2022) after introducing ads to its Prime Video subscribers, news leaked from inside the company that Freevee will indeed be shuttered over the coming weeks.

A Tale of Two Converging Business Models 

Prime Video is the latest streaming service to embrace advertising, which is set to deliver 115 million subscribers per month to corporations’ marketing departments. Studio players can be forgiven for aggressively implementing advertising on their streaming service because they are trying to replace lost revenue elsewhere in their business model.

However, Amazon, and especially Netflix, are throwing away arguably their most valuable saving grace as a refuge from a deluge of ads on other services and traditional television. Instead of differentiating from its competitors, Netflix and Amazon are joining an ever-crowded marketplace of ad-supported services.

Despite being perceived as less prestigious and disruptive to the viewing experience, there is more money in ad-supported than ad-free. The ARPU (average revenue per user) for SVOD services compared to AVOD services was approximately the same a year ago, but the tables are turning. Netflix expects its ARPU for its new AVOD service in the U.S. and Canada to generate $17.50 per month compared to SVOD at $16.75.

Streaming Subscribers Sue Prime Video Over Advertising

Recently, on Prime Video, ads started popping up on scripted series and films. Over 167 million existing Amazon Prime members in the U.S. are now required to pay an additional $3 per month to enjoy the same service they signed up for to avoid ads. The upcharge for an ad-free experience will also affect subscribers in the UK, Germany, and Canada first and will soon reach France, Italy, Spain, Mexico, and Australia.

While it’s nearly certain that buried deep in legalese, Amazon was permitted to change the terms of the agreement with its subscribers; yet it wasn’t enough to stop class action lawsuits, which were filed last week.

The Ad-Free Pricing Gap Widens

The pricing gap between ad-free and uninterrupted access is widening. Netflix’s cheapest ad-free tier costs more than double its $6.99 ad-supported tier. Wisely, however, Netflix introduced its advertising tier as a cheaper alternative rather than an upcharge like Amazon’s recent blindside to its loyal subscribers.

Ad-supported platforms and options deliver better financial results in terms of average revenue per user, which benefits content owners and distributors but at a high cost to the viewing experience.

The ad-pricing tiers will increase in price and become more complicated, and the ads per hour will invariably continue to increase. Advertisers will now have access to an estimated 115 million monthly Prime Video subscribers, which makes it an immediate toe-to-toe competitor with the industry’s ad-supported streaming leader, Disney’s Hulu. Advertising to subscribers already directly connected to the e-commerce giant has advertisers and companies salivating.

Mainstream streaming services have entirely abandoned the promise of ad-free streaming subscriptions, and now only niche providers are keeping the optimal viewing experience intact, which leaves room for more specialty providers to highlight diverse content to passionate audiences.

Worldwide Film & Television Distribution Intelligence

Get unparalleled access to market intelligence reports that draw on financial data and insights from dozens of content distribution deals worldwide between key industry participants, including — Distributors, Producers, MPVDs, and Streaming Exhibitors.

Film and Series distribution rates and terms deriving from dozens of agreements for rights to transmit films and episodic television via PayTV and SVOD.

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Licensing Terms & Included Programs:

Pay-1 & SVOD Rate Cards for Motion Pictures and Series Exhibited Worldwide in Multiple Availability Windows

  • Motion Pictures: Pay-1, First Run, Second Window Features, Recent Library Features (Tiers AAA,A,B,C), Library Features (Tiers AAA,A,B,C), Current and Premium Made-For-TV Films and Direct-To-Video Films, covering many license periods over the last decade
  • Episodic TV: Current, Premium, Premium Catalog (1HR & 1/2HR), Catalog Series (1HR & 1/2HR), and Catalog Miniseries + Case Studies on Current Mega Hit, Catalog Mega Hit, and Premium Catalog, covering many licensing terms from 2012-2024
  • Because most-favored-nation rates operate in practice, the rates and terms apply to a diverse range of content and distributors worldwide in multiple availability windows.

The Road to Profitability Mirrors Cable Television

Streaming services have been raising subscription prices over the last few years, incentivizing advertising options among subscribers. Contrary to common belief, this generates more average revenue per user (ARPU) versus ad-free tiers. With rising content costs and greater competition, streamers are striving for profitability instead of a marketing arms race to lure more “unprofitable” subscribers. Uncover what streaming services around the world pay for film and television series content with unprecedented access to the inner workings of distribution deals, revealing how distributors, streaming services, and pay television providers value and license film and series content.

The capture phase is waning as streaming services will try everything under the sun to squeeze their existing subscribers in a repeat of the cable television age.

Last year, over a quarter of signups to the leading streaming services were ad-supported. According to industry forecasts, over 60% of viewership on three big studio services, Hulu, Paramount+, and Peacock, will include ads.

Hulu is the leader of all ad-supported services in the United States. Around half of its 115 million subscribers will receive ads this year. However, Peacock and Paramount+ have a higher percentage of advertising-supported subscribers.

FilmTake Away: Adapting to Digital Disruption in an Advertising Age

The fierce competition among streaming giants for content and subscribers is fundamentally altering the landscape of content production and distribution. The race for original, compelling content and strategic alliances intensifies as platforms like Netflix, Disney+, and Hulu vie for market dominance in an advertising-fueled market.

Hopefully, this emerging battleground will spur innovations in content delivery, viewer engagement, and aggregation, reshaping the industry’s future. However, it’s more likely the entire market will revert to a cable television model, only infinitely more complex and confusing for distributors and viewers alike.