In half the time it took Netflix to become synonymous with binge-watching ad-free content, we have more streaming services than we know what to do with, and the industry is on the verge of another transformation.
In this newsletter, I will be using some industry jargon, so let's get those definitions out of the way first.
1. Streaming Video On Demand (SVOD):
Services such as Netflix, Disney+ and Amazon Prime are known as Streaming Video on Demand (SVOD) services. These services offer ad-free streaming services and provide a collection of original and licensed content.
2. Ad-Supported Video on Demand (AVOD):
Services such as Hulu and Peacock (possibly HBO Max in 2021) that offer lower-tier subscription models in exchange for showing ads to the viewers are known as Ad-Supported Video on Demand.
3. Over the Top (OTT):
These are streaming services that users can access directly through the internet. Services such as Netflix, Amazon Prime, Hulu and others are known as OTT.
4. Connected TV (CTV):
Connected TV or CTV is any television that is connected to the internet and where users can stream content directly from the internet. Smart TVs that are connected to the internet or TVs that are connected to gaming consoles and other devices that enable streaming are called CTVs.
Now on to the exciting stuff.
Netflix, Disney and Amazon
In the streaming business, keeping paying customers isn't cheap, and most streaming services are struggling to keep subscribers past the first 6 months.
Here's the understatement of the year: Maintaining an attractive streaming service in 2020 isn't cheap.
Streaming services need to maintain a healthy mix of evergreen TV shows (think Friends, Seinfeld etc.) that are licensed from other producers to keep people paying month after month. But it's the exclusive original content that attracts new subscribers.
And no one spends more on creating original content than Netflix. Last year Netflix spent $15 billion on creating original content compared to Amazon's $6 billion.
At the moment, Netflix, Disney+ and Amazon Prime are the three largest streaming services vying for a share of your wallet.
In addition to competing with each other, they also have to contend with an ever-increasing number of services offering cheaper ad-supported subscription plans.
Netflix, being the most expensive of the three, is already seeing their growth in the US plateau with analysts expecting an increase in subscriber churn in the near future as consumers struggle with more choice and limited budgets.
Churn isn't a Netflix problem alone.
The tale of two business models
The streaming industry is at a crossroads. On the one hand, there's the incredibly high upfront cost of producing original content and spending on marketing to retain subscribers to offset that investment in the long run.
On the other is the ad-supported model.
And the latter is increasing in popularity. Several surveys in the US and the UK already show that people prefer it to the more expensive streaming services.
But that's not the only reason.
Other reasons include getting access to a much larger pool of content (think Hulu) and being able to find content that isn't currently available on larger streaming services.
Things get even more interesting when you start accounting for hundreds of national and regional media producers, creating their own apps for ad-supported online streaming.
According to IHS Markit report, new AVOD services and improvement in adtech are driving increased interest in CTV advertising, and the market is expected to grow at CAGR of 11% between 2018 and 2023.
Would you like ads to go with that Netflix and Chill?
If you're anything like me, you take pride in avoiding ads at all cost, and you're unlikely to be convinced to watch any ads when streaming your favourite content willingly.
The whole promise of Netflix is the uninterrupted binge-watching bliss. I mean, many of us take offence to Netflix showing the 'Are you still watching?' notification.
Of course, I am! Stop judging me and play the next episode, smart ass.
The ad-supported model doesn't work for Netflix, and that's because they taught us that we shouldn't have to watch ads when we subscribe to Netflix.
That doesn't mean that Netflix hasn't tried.
Perhaps you remember the 2018 A/B test when some viewers were shown non-skippable ads for Netflix's own content in between episodes. You can probably guess how well that was received.
But just because Netflix has to look for other venues to continue its growth and contend with more aggressive competitors, doesn't mean that ads don't work for streaming services.
Advertising on CTV
A survey conducted by Unruly in the UK discovered that as many as 21% of respondents were willing to try out ad-supported streaming options. It turns out that people want to watch ads as long as AVOD services offer flexibility, control and personalisation.
That takes care of the viewers, so what about the advertisers.
For advertisers, the added benefit of advertising on CTV besides the cheaper cost, you can run large campaigns at a tenth of a cost of linear TV, is better memorability.
The same study found that people remembered the ad much better and had a much more positive experience when the ad matched their mood and the context of the content they were watching.
Hulu and other AVOD streaming services
According to industry estimates, over half of Hulu's (owned by Disney) users subscribe to the ad-supported model.
According to another estimate, 20% of the Upfront budget in 2019 went to Amazon Fire TV and Roku, both of which offer advertising options. In 2020 that number jumped to 25% with Disney, NBC, Amazon and Roku bringing more advertising revenue to their AVOD services.
Comcast's has also announced providing 10 different ad-formats including shoppable ads on Peacock and HBO Max is rumoured to introduce an ad-supported model next year.
Samsung Smart TVs to the rescue
With online video blowing up as it is, a mere 5% increase YoY doesn't sound like much of an improvement.
And it really isn't but not without a good reason.
For advertisers, success in video advertising is about efficiency and scale.
And the current fragmented landscape of CTV advertising isn't built to deliver either.
First, there are no standards on how ads are sold across different platforms, which leads to the second challenge of accurately measuring what content people are consuming as they hop between multiple services.
This is where Automatic Content Recognition or ACR comes in.
Think of ACR as facial recognition for content being displayed on a screen.
ACR takes pixels from the content being viewed on the TV screen and matches it with an existing library to determine whether a viewer is watching Star Trek or exploring the shores of England aboard a biking ship in AC Valhalla.
Samsung Ads - the advanced TV advertising arm of Samsung, is using ACR to gather this data from 50 million Samsung Smart TVs in the US. Samsung recently announced that it would also start selling its ad inventory across its smart TVs programmatically.
Besides Samsung ad-tech provider Zephyr is partnering with Iris TV to make CTV advertising more attractive and friendly for advertisers.
If you've come this far, you're probably wondering that all this takes care of making linear TV more addressable and digital but what about the undisputed king of streaming video, YouTube?
Google and YouTube
Content views on CTV grew more than any other device for YouTube this year.
And now Google is setting the stage for attracting TV budgets to its streaming platform.
YouTube is already well-known for on-demand video content. There's YouTube Originals and YouTube TV that offer content from other streaming services, channels, live sports events and unlimited DVR storage.
While Samsung Ads and others are sorting out the linear end of CTV transformation, Google wants to continue its dominion over the web.
But there's a slight hiccup in its plans.
Advertisers still haven't come around to viewing YouTube as a replacement for TV.
Can you really blame them, though?
For a long time, YouTube has been positioning itself as the solution to linear TVs troubles. While your investments in branded advertising and massive national campaigns on linear TV were difficult to measure, YouTube offered you measurable performance and addressability.
Brand safety has always been a bit of an issue online, but for the most part, advertisers haven't been too bothered as long as the ads are shown next to content that's not too inappropriate.
Content on YouTube hasn't really been on par with the production quality we've come to associate with TV. As a result, advertisers have been satisfied focusing on reaching audiences based on their interest.
Advertising on TV takes a bit more than that.
In addition to brand safety, advertisers also focus on brand suitability when advertising on TV.
Brand suitability is finding the right inventory mix as well as the right shows that match the sentiment your brand is looking to establish. Unsurprisingly ensuring brand suitability is much easier when buying ad-inventory directly from a TV channel than with CTV at the moment.
New and improved ad-offering on YouTube
Attracting TV-style branded campaigns to YouTube is a must-win battle for Google for maintaining its market leadership in online advertising.
And YouTube is Google's best bet at offering much more attractive cross-media advertising options for both branded and performance marketing campaigns spanning all formats and devices.
Amidst the recent brand safety concerns on YouTube, Google extended an olive branch to advertisers by offering Google Preferred inventory advertising program to include YouTube TV as well.
Going one step ahead, YouTube has been gathering aggregated data from brand lift surveys across YouTube TV, which it plans to share with advertisers in the form of Do's and Don'ts of CTV advertising next year.
As CTV viewership grows, Google is also building the infrastructure around YouTube to position it as the strongest online video streaming service for CTV. Starting next year, Nielsen will include ads running on YouTube in its Digital Ads Rating system.
This is yet another step that will move YouTube higher up in the brand advertising food chain.
What did we learn from all of this?
There are three different types of business models that we need to pay attention to:
1. Born digital.
2. Born offline but transformed into digital.
3. Offline but augmented by digital.
Any changes across these three types have the power to shift industries and disrupt existing ways of getting things done.
Linear TVs transformation from offline to online has been in the making for a long time, and now it's reaching critical mass.
To all the media planners, entrepreneurs and advertisers, keep your eyes peeled because this phase of TV's transformation to digital is going to be an exciting one!