Why Streaming Companies Are Embracing Ads

Why Streaming Companies Are Embracing Ads

Advertising

Amazon got all the headlines with the news of its $8.45 billion acquisition of MGM on May 26. But days earlier, HBO Max made an announcement with equally big ramifications for streaming companies and advertisers: the launched of a tiered version in which consumers will pay less for a subscription that includes advertising. The news raised eyebrows. After all, HBO has essentially been known as something of a “walled-off garden”: freedom from advertising has been practically a calling card for the television network since its origination. The new offering is the latest example of a streaming company introducing ads — and a sign that HBO is paying attention to trends and consumer behavior. Let’s take a closer look at the news.

Ad-Supported Streaming Is Gaining Ground

HBO is clearly aware of a shift to more ad-supported services in the streaming realm. And as noted by CNBC, Nielsen data supports the uptick: “In January 2021, 34% of U.S. households that had video streaming capability used ad-supported streaming services, up 6 percentage points from January 2020 . . . That applies both to ad-supported on-demand video platforms and linear streaming.”

The advent of ad-supported services is just the latest chapter in the so-called streaming wars, which have been raging over the last year and a half as media and tech giants rolled out their versions of competitors to Netflix and Amazon Prime. Ad-supported tiers have become part of that contest, as streamers gauge what balance of ads consumers will tolerate — for a lesser fee.

HBO Max’s bid to navigate that balance is HBO Max With Ads, which at $10 a month represents a $5 discount to HBO Max’s ad-free subscription. Even with the discount, HBO Max is still one of the pricier alternatives out there. As CNET observes, “HBO Max’s $15-a-month ad-free pricing goes up against Disney Plus at $8 and Netflix’s cheapest plan at $9. Even among the services with discounted advertising-supported tiers, Hulu and Paramount Plus both charge only $6.”

But Julian Franco, vice president of product management at HBO Max, is confident that consumers will appreciate the dynamic their ad-supported platform creates (if at a higher price point): in Franco’s estimation, viewers won’t be bothered by the ads at all.

In some cases, that’s because even on HBO Max with Ads, there may not always be any. Franco explained that the amount of video advertising one sees — that is, the ad load — may vary depending on what one watches. Programs licensed to HBO Max, like Big Bang Theory, will have ad breaks. But programs that originated on HBO’s regular network won’t feature bumpers or spots during playback. Bottom line: HBO Max estimates that typical ad load for an ad-supported subscriber will clock in at just under four minutes per hour. If this projection holds true, HBO Max will be honoring its vow that it will have the lightest ad load in the streaming industry (NBCUniversal’s Peacock currently holds that crown, with an ad load of five minutes per hour).

Why Are Streaming Companies Introducing Ad-Supported Options?

In part, it all goes back to the streaming wars referenced earlier. More people are online watching content, a phenomenon that really picked up during the online surge of 2020. Streaming companies are competing for those eyeballs — and trying to entice viewers by offering ways those consumers can pay less.

Another factor: it costs a lot of money to operate a streaming service, whether you are producing original shows and movies (like Amazon’s new Lord of the Ring series) or buying rights to someone else’s content. Ads help defray those costs.

What’s Next: A Prediction

Will more streaming companies adopt advertising? Possibly so. But Netflix may not be able to pull it off. Netflix is spending billions to create new content, and the company has gradually increased subscription prices to recoup some of the costs. Netflix does not dare introduce advertising to its 200 million subscribers who are already paying a premium. But offering a lower-priced subscription with advertising may not attract enough subscribers at a time when its customer base is plateauing. I predict that Netflix will be sold to Apple. That’s because Apple has deep pockets and is eager to achieve brand cachet, which it lacks right now.  But Netflix has plenty of brand cachet. I could see Apple buying Netflix but allowing the company to keep its own name. Time will tell. But the day is coming.

What Advertisers Should Do

How should brands respond in this evolving environment? We suggest:

  • Consider the different options available. According to CNET, HBO Max intends to embrace some unconventional ad formats, including “pause ads,” which come up only after viewers have paused playback for at least 10 seconds, or a “branded discovery” option that places a sponsor’s banner at the top of a page of recommendations. Think about what format best serves your brand.
  • Use analytics to monitor the reaction to ads. The industry is still learning how receptive people will be to ads — and if different approaches, such as HBO’s effort to provide a more “high end” ad experience, engender a more positive response.

Contact True Interactive

Eager to learn more about this new world of advertising in the streaming world? Contact us. We can help.

YouTube: The Streaming Ad Giant

YouTube: The Streaming Ad Giant

YouTube

Who knew? YouTube is an advertising giant in the streaming industry. And YouTube is becoming increasingly vital as more people stay at home and stream content in light of recent news events.

According to App Annie, in 2019, YouTube made a whopping $15 billion on ads alone. The news comes courtesy of Alphabet (the parent company of Google): for the first time since Google acquired YouTube in 2006, Alphabet has released YouTube’s ad revenue. And the figures are staggering, accounting for almost 10 percent of Google’s overall $161 billion revenue in 2019.

Why This Matters

The news is important because it underlines YouTube’s dominance in an increasingly crowded arena. As App Annie points out, on Android phones, about 70 percent of time spent on the top five video streaming apps worldwide was on YouTube. The platform, a pioneer in the world of video streaming, continues to hold its own. That’s telling. As Forbes notes, “In a market where new streaming video services seem to spring up overnight, YouTube isn’t losing viewers or ad money.”

Also notable: while many of the top apps are Chinese brands, enjoying strong support in China, YouTube isn’t active in the Chinese market—and yet it is still number one in rankings measuring time spent on the top streaming platforms. By a significant margin.

How YouTube Does It

So how is YouTube achieving this cash cow status?

  • For one, YouTube delivers an audience, and you need an audience to attract advertisers. As Lifewire points out, YouTube is one of the most popular sites in the world. It’s arguably the favorite video-sharing and viewing site on the web today, offering a range of long- and short-form free content. And as Lifewire notes, “Youtube.com is the second most popular website in both the global market and in the U.S for 2020, even though a huge portion of YouTube views are from outside the U.S.”
  • But YouTube also does something else: it continuously offers advertisers attractive products. As we’ve blogged in the past, YouTube’s Masthead ad format for TV allows brands to connect with consumers the instant users access the YouTube app on their televisions. The Masthead format is a response to the fact that while consumers aren’t watching as much linear TV, they are still using their televisions as a tool for experiencing streaming platforms like YouTube. In other words, YouTube understands viewing trends, and is staying nimble in its bid to connect with advertisers in an informed way.

What Can Be Learned from YouTube’s Success?

We can draw two conclusions from YouTube’s enduring popularity:

  • First, streaming platforms, especially Netflix, cannot help but notice how well an ad-supported format on YouTube has been working. Netflix—and other competing platforms—certainly must be feeling more pressure to create advertising products. And that’s good news for brands. (I blogged about Netflix’s potential adoption of advertising in this post, “Why Netflix Might Embrace Advertising.”)
  • Second, YouTube’s growth likely bodes well for apps like Quibi (another destination for streaming video that relies on ads). Quibi is endeavoring to carve a niche in a crowded field; YouTube shows them what’s possible, and arguably creates an environment ripe for inspiration.

Clearly, streaming platforms offer an attractive opportunity to advertisers. Note also that in light of recent events, it is expected that more people will turn to streaming platforms such as YouTube. Per a blog post from PMG, “Popular media platforms such as YouTube and Tik Tok will also likely see a monumental boost as kids and teens spend more time online and at home” during temporary school closures caused by the COVID-19 pandemic. YouTube, with its combination of innovation and reliability, is proving to be a model for succeeding with ad-supported shorter-form streaming. In its quiet bid for dominance, YouTube has become a leader.

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Want to learn more about YouTube, and the opportunities that exist for advertisers in the streaming community? Contact us.

Quibi, the Newest Disruptor: Advertiser Q&A

Quibi, the Newest Disruptor: Advertiser Q&A

Advertising Video

Just when you thought you had a handle on content streaming (Netflix: check, Disney+: check), a new player has emerged with the potential to shake things up all over again. Backed by a boatload of cash and the imprimatur of Hollywood royalty like Steven Spielberg, Quibi is poised to carve a unique niche in a crowded field. Read on to learn more.

What Is Quibi?

 

Quibi is a new premium streaming service that imposes a cap on programming time: the name Quibi, in fact, is shorthand for “quick bites” of video. Quibi aims to showcase stories of 10 minutes or less; content is meant to be viewed specifically on one’s mobile phone. The platform, founded by chairman Jeffrey Katzenberg, has installed tech vet Meg Whitman as the CEO, and investors include studios like Walt Disney Co. and WarnerMedia.

What Kind of Content Will Be on Quibi?

Given the unique mobile phone focus, Quibi will be generating all new content. As Whitman tells Marketplace, “We will be the first streaming service that launches without a library.” As Whitman sees it, starting from ground zero means an opportunity to create something truly fresh: “We have . . . invested significantly in content. This is all about finding the great stories, attaching the great actors and actresses to it and getting them excited about doing something entirely new.”

Quibi expects to deliver 175 shows and 8,500 episodes in its first year. The content promises to be a diverse mix, from long-form narratives to reality programming, documentaries, food shows, and daily news programs. Given Quibi’s format, the long-form narratives will be delivered in bite-sized chunks, serial fashion (think Dickens and the serial way he delivered novels like Pickwick Papers). Whitman is quick to stress that short format doesn’t mean inferior quality. “Nothing’s lesser about the movies [we’re developing] other than the chapterized way we deliver them,” Whitman says.

Content can be downloaded, so users won’t need an active Internet connection to view programming. And quality of the viewing experience is a prime mandate. As Whitman told Marketplace, “[P]eople are watching a lot of videos on their mobile phone today, but it’s an uneven experience. Sometimes, if you’re holding the phone in portrait, it’s a little postage-stamp size, then you turn it horizontally, it’s got big black lines. Some content is only available in portrait, some is only available in landscape . . . we have to be able to have seamless portrait-to-landscape rotation with full-screen video.” To that end, the company is employing what Whitman calls “compression technology,” and reportedly working with Google to ensure flawless video streams. Whitman also notes, “[W]e shot, obviously, to the aspect ratio of the phone.”

How Is Quibi Different from YouTube and Other Platforms?

As noted, story lengths on Quibi are capped at 10 minutes. And Quibi content has specifically been created for viewing on a mobile phone.

There is a distinction between what Quibi promises and the content made for mobile phones on free platforms like, say, TikTok. Services like TikTok offer user-generated content. By contrast, filmmakers like Steven Spielberg and Catherine Hardwicke are collaborating with Quibi to create programs designed specifically for viewing via Quibi, sometimes even at certain times: “Spielberg’s After Dark” series will only appear on the service at night, for example. An untitled show devoted to zombies is reportedly being discussed with Guillermo del Toro. User experience will also be informed by how customers hold their phones: changing from vertical to horizon orientation will change what the viewer sees.

Who Is the Target Audience for Quibi?

The target audience is Millennials—ages 18 to 44. The idea is that the platform will especially appeal to consumers on the go: someone waiting in line at the bank, say, or taking a quick bus ride during which 10 minutes of content might be the perfect diversion.

When Does Quibi Launch?

The platform is due to launch in the United States on April 6, 2020, but as Whitman notes, “you don’t have to wait till then to get involved.” On Quibi.com, you can learn about new shows, the technology, and any milestones before launch date. Whitman adds, “We’ll let you know on April 6 when you can download the app from either the Apple App Store or Google Play Store.”

What Advertising Opportunities Exist on Quibi?

There will indeed be opportunities for advertisers, as users will be invited to choose between Quibi with or without ads. The service will launch, for viewers in the United States, at $4.99 a month with ads, $7.99 a month without. Whitman shares with Marketplace, “We think that most [consumers] will pick the ad-supported version because it’s a very light ad load. It’s only 2.5 minutes per hour of watching, which is much less than prime time TV, which is 17.5 minutes of advertising for every hour that you watch.” Ads will appear before a Quibi show begins and last six, 10, or 15 seconds. They will be unskippable. Advertisers already onboard include Discover, General Mills, Taco Bell, Walmart, and PepsiCo.

Quibi programming will also come with ratings to help advertisers determine whether a show is geared to mature audiences. At the WSJ Tech Live conference in October 2019, Whitman said, “[Marketers] can feel safe that their brand shows up next to content that they’re OK with.”

And because Quibi programming is structured around serialized chapters, the platform is looking into an alternative where advertisers could serialize their ads, too.

What Kind of Reception Has Quibi Received?

It’s a mixed one. Naysayers insist the endeavor is a gamble, and that the subscription fee will discourage consumers used to video content that can be viewed for free on platforms like YouTube. Katzenberg, however, is confident. “I think we are doing something that is now such a well established consumer habit,” he told NewsDio. “There are 2.5 billion people walking with these televisions in their pocket. They are already watching a billion hours of content every day. I just know that it will work.”

Quibi has tried to get out in front of its critics by building visibility through some (presumably expensive) ads during the 2020 Super Bowls and Oscars.

Not all watchers have been impressed, as this Verge article discusses.

There’s no denying Quibi has attracted some heavyweights to create content. Will consumers be willing to pay for that content? Only time will tell.

Contact True Interactive

Curious about Quibi and the opportunities this new platform affords? Contact us.