Streaming ads are key to Disney and Warner Bros
This motion picture released by Universal Pictures shows Mark Wahlberg, left, with the character Ted, voiced by Seth MacFarlane, in a scene from “Ted.” (AP Photo/Universal Pictures)
Credit: Universal Pictures/Tippett Studio
After years of painstakingly amassing streaming subscribers, media companies now need to turn a profit. And they are increasingly turning to advertising as an answer.
Evidence of this can be seen in the recent annual Upfronts, the events that media companies like to attend Fox Corp., Warner Bros. Discovery, Disney and Comcast’s NBC Universalmade their promotional presentations to advertisers.
Faced with star and talent shortages due to the ongoing Hollywood writers’ strike, NBCUniversal kicked off its event with an animated video of Ted, the foul-mouthed teddy bear created by Seth MacFarlane landed a series on the company’s Peacock streaming service, where she sang and danced to a tune that included the chorus “We need publicity.”
“We were all dreamers when we thought the streamers were anything but fads,” the animated teddy bear sang to the audience. “Now we’re all begging for publicity.”
The ad push is occurring not only because subscriber growth is slowing and customers are entering and exiting services—commonly known in the media industry as churn—but also because the advertising market has weakened and is slow to recover.
During Disney’s earnings call earlier this month, CEO Bob Iger put a new emphasis on ad-supported streaming. And Paramount Global and NBCUniversal have touted that they had cheaper ad tiers from the start. Warner Bros. Discovery has also added such options for consumers.
“Despite the near-term macro headwinds of today’s overall market, the advertising potential of this combined platform is incredibly exciting,” Iger said after announcing that Hulu content would be joining Disney+, a move that would be positive for advertisers.
Self Netflix, which opposed advertising for years, came into play. The 800-pound gorilla in the streaming room held a virtual presentation for advertisers for the first time last week, revealing information about its ad-supported tier that gave its stock a boost.
Still, it’s early days, and it’s unclear whether advertising will fill the gaps in streaming subscriber growth’s unstable growth.
“We need advertising”
The number of consumers signing up for ad-supported streaming subscriptions is increasing. According to data company Antenna, they rose almost 25% year over year in the US to 55.2 million in the first quarter of this year from 44.3 million in the same period last year. The growth in ad-supported tiers also increased last year. Ad-supported plan levels accounted for 32% of enrollments in 2022, up from 18% in 2020.
When Netflix announced it was losing subscribers early last year, it sent the streaming world into an uproar. This weighs on stock prices and pushes executives to find other ways to generate revenue. At the end of the year, Netflix introduced a cheaper, ad-supported tier. Competitor Disney+ did the same.
Media companies are returning to the original business models that have long sustained their business – generating revenue from content in a variety of ways, rather than relying on one route, a subscription business.
While Netflix noted that it’s still “in the early stages,” this week said it has 5 million monthly active users for its cheaper, ad-supported option, and 25% of its new subscribers are opting for the tier in regions had registered in which it was available.
But media companies struggle with the question of whether advertising subscriptions can offset other losses.
“I don’t think we fully know that answer yet,” said Jonathan Miller, former Hulu board member and current CEO of Integrated Media, which specializes in digital media investments. “But I think we’ll learn that [subscription, ad-free] Customers who don’t churn will be the most valuable. You have to learn math over time when the playing field calms down.”
Disney, which is also the majority owner of Hulu, has the most ad-supported subscriptions, followed by Peacock, Paramount+, Warner Bros. Discovery — the soon-to-be-merged Max and Discovery+ — and Netflix on the antenna. Hulu and Peacock are the two streamers with the majority of subscribers at ad-supported tiers, according to the data provider.
Another way to monetize streaming companies with revenue is through free, ad-supported, or FAST channels.
The new streaming model is more similar to the previous TV model. FAST channels are like broadcast television; cheaper ad-supported streaming tiers are similar to cable TV networks; and the ad-free premium options are similar to those of HBO and Showtime.
“I see FAST as a replacement for the old syndication business. There are multiple ways to monetize television,” said Bill Rouhana, CEO of Chicken soup for soul entertainmentwhich owns ad-supported streaming services like Crackle and Redbox, as well as FAST channels.
In this photo illustration the Paramount Global logo seen displayed on a smartphone screen.
Rafael Henrique | SOPA images | flare | Getty Images
Free streaming services, which offer both a library of on-demand content and a guide of curated channels, have seen explosive growth in recent years. Fox and Paramount acquired Tubi and Pluto, respectively, just before viewership started to pick up. The deals became a badge of honor in company earnings announcements.
For these larger media companies, they have also become a place for their own libraries. Pluto shows previous episodes the lucrative “Yellowstone” series, which has also given Paramount+ a boost through several spin-offs.
“We’ve really seen seismic change in the last year,” said Adam Lewinson, Tubi’s chief content officer. “With the overarching challenges in terms of the paid streaming model and then with the subscription fatigue. Here people pay more attention to their expenses in economically difficult times. In addition, almost one in three streamers is now reducing their spending.” Streaming.”
For Fox, which focuses on sports and news on traditional TV channels, Tubi is the answer to streaming. As CEO Lachlan Murdoch previously noted in a earnings call, Tubi was the focus of Fox’s upfront presentation last week. Executives praised Tubi for recently creating measurement company Nielsen’s Streaming Gauge report for the first time.
Paramount has similarly emphasized Pluto’s growth. During the company’s upfront dinners with advertisers, Pluto was a key part of the conversation, said David Lawenda, Paramount’s chief digital advertising officer.
Warner Bros. Discovery has announced plans to create its own FAST channels. In the meantime, it has pulled content from HBO Max and licensed it to Tubi and roku.
“Also distributing your content through FAST channels is probably the wisest thing to do. It could create strategic value in addition to pure money,” said Rouhana of Chicken Soup for the Soul Entertainment. “In a world where churn is a fact, it can only be good to be able to re-show content to lost subscribers and make money in the process.”
To make up for losses, companies are also raising streaming prices. A combination of price increases and ad revenue is the planned route to profitability, Iger said during Disney’s conference call earlier this month.
Executives from media companies like Warner Bros. Discovery, Paramount, and Disney have said in previous investor calls that there’s still room for growth in ad-free streaming options.
During the Disney earnings conference, Iger said that while the company has no intention of raising prices for ad-supported customers, people who pay for content without ads could 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
“Meanwhile, 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 content offerings,” he said. “Looking ahead, we will continue to optimize our pricing model to reward loyalty and reduce churn to increase subscriber revenue for the ad-free premium tier and drive growth of subscribers offering the lower-cost ad-supported option.”
HBO Max, Disney and Paramount have all hiked the prices of their streaming services over the past year as consumers grapple with inflation on groceries and other essentials.
“I don’t see that, given the nature of the macro economy, you can keep raising prices on the subscription side,” Integrated Media’s Miller said. “For me, it’s the right combination of things that optimizes the business.”
Disclosure: CNBC is part of NBCUniversal, which is owned by Comcast.
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