The State of Video Monetisation 2024
It seems safe to say that ad-supported subscription video (imperfectly abbreviated as “SVAD”) is the ascendant new business model that eventually may work to bring in revenue for subscription-based streaming services whose growth curve has flattened since their pandemic peak. In 2022, Netflix and Disney joined the other leading streaming companies to offer cut-rate ad tiers in the hope of retaining or adding subscribers who are looking to pay less for their offerings. Amazon recently introduced a subscription-with-ads option for consumers, and Apple is rumoured to soon be offering one too.
A 2023 Samba TV research report shows that 60% of US adults would consider subscribing to a discounted streaming service if it meant watching ads. eMarketer notes that more than two-thirds of Peacock, Paramount+, and Hulu viewers will be on an ad-supported tier in 2024 (Figure 1).
Figure 1. Subscription OTT Ad-Supported Viewer Penetration, by Provider, according to eMarketer
“Ad support is continuing to grow, with Netflix and Disney+ introducing ads and Prime Video flipping to ad-supported, because what we found is that customers don’t have an aversion to ads,” says Jeff Katz, US head of verticals at Roku.
“Half of the new sign-ups choose the ad-supported tier,” confirms Matt Barnes, VP of programmatic sales at Disney, “which obviously has been a tremendous success for the advertising business.”
“The ads plan now accounts for 40% of all Netflix sign-ups in our ads markets, and we’re looking to retire our Basic plan in some of our ads countries, starting with Canada and the U.K. in Q2 [2024] and taking it from there,” reported Netflix co-CEO Greg Peters in the company’s Q4 2023 earnings call. “We’re very optimistic [about ads]. … It’s a huge opportunity—$180 billion ad spend [excluding] China and Russia, $25 billion alone on connected TV. The countries that we currently operate in represent about 80% of global ad spend.”
Growth Rates
While most subscription-oriented OTT companies are embracing an ad-supported model, it remains unclear how much time it will take some of them to get up-to-speed and see their bet pay off. “I’d say we’ve got years of work ahead of us to take the ads business to the point where it’s a material impact to our general business,” comments Peters. Until that time arrives, companies will continue to trumpet whatever growth rate they can demonstrate.
Paramount reports that in Q3 2023, Paramount+ revenue grew 61% year over year, driven by subscriber growth and increased advertising revenue. But the data the company shared doesn’t break out how many of its new or retained subscriptions are for ad versus non-ad tiers. Its advertising revenue for Q3 grew 18% to $430 million. Subscription revenue increased 46% to $1.3 billion.
Meanwhile Roku reported platform revenue of $787 million in Q3, up 18% year over year, based on content distribution and video advertising. The company noted that its Q3 year-over-year growth in video advertising “outperformed both the overall ad market and the linear TV ad market in the U.S.”
Warner Bros. Discovery reported that its Q3 2023 advertising revenue was up to $138 million, 30% over the previous year. Comcast’s Q3 2023 earnings report indicated that Peacock revenue increased 64% to $830 million, while subscriber growth year over year increased 80%.
“As we think about streaming, it’s actually bringing in a new audience, it’s not just cannibalising linear,” stated Mark Marshall, chairman of global advertising and partnerships at NBCUniversal, in a presentation at CES 2024. “It brings in a new audience. You’re able to reach them in different ways with programmatic and different elements that allow more advertisers into that.”
Why Ad Tiers Are Working
The interesting element to this business model is that in linear TV previously, cable subscribers were paying for their service and watching ads during most of the programming. With streaming, until recently, ad-based and subscription-based services were generally distinct. But now, viewers are paying for a subscription and are seeing ads, as they did with cable. So, the streaming business got one thing right when it came to obtaining incremental revenue: charge for the accounts, and then show ads.
“It was pretty clear that a lot of these streaming services were a little upside down when you take into account the cost of the content and getting that content to the eyeballs,” says Jackie Jones, CEO of Velvet Hammer Consulting. “So that necessitated trying to get revenue in a different way, which is through ads, because then you’re getting the subscription cost, but you’re also getting the ad revenue.”
Current monthly fees for ad-tier subscriptions in the US start at $5.99 for Paramount+, $5.99 for Peacock, $6.99 for Netflix, $7.99 for Hulu, $7.99 for Disney+, and $9.99 for Max. The Disney+/Hulu bundle costs $9.99 with ads, and with ESPN+ added, the cost goes up to $14.99. A couple of companies have mentioned that both ad-supported and non-ad-supported viewers are spending about the same amount of time consuming content.
There are a few problems with understanding how companies report their advertising-derived revenue. There is average revenue per user (ARPU), which is easy to understand. But there is not a standard breakdown between subscription revenue that includes ad-based subscriptions and non-ad subscriptions. And we are not even touching on the costs of building the ad tech that runs this business model. Based on Dan Rayburn’s analysis of the Q3 2023 earnings reports, the ARPU for Hulu’s Live TV + SVOD is $90.08, and Fubo’s North America ARPU is $83.51. Roku comes in a close third with a global ARPU of $41.03.
CPM Rates
What is the most effective way to measure the success of these new SVAD initiatives? Should we measure on lifetime value of subscriber? ARPU? Subscriber base? Ad revenue? Profitability? How about on CPM?
If there is so much potential here, why are CPM rates where they are? eMarketer predicted that Q4 2023 CPM rates would trend down. The statistics it reported were $47.05 for Netflix, $46.64 for Disney+, $40.04 for Peacock, and $25.32 for Hulu (Figure 2). Netflix has dropped 20% in a 1-year period. Disney+ is down 6.72%, Peacock is up 5.9%, and Hulu is up 3.76%. Enter Amazon stage left, where I’ve seen editorial coverage suggesting it will be targeting CPMs in the mid to low $30s.
Figure 2. The predicted CPM rates gap among streaming services for Q4 2023, according to eMarketer
Streaming platforms have a much lower ad load than linear. Peacock says it has less than 5 minutes of ads per hour. What is typical? “For the streaming space in general, it’s about 3 minutes per hour of advertising time, whereas for broadcast television or cable, it’s closer to 16 minutes,” says Roku’s Katz. “For the Roku channel specifically, which is what I could speak to, it’s even less than that 3-minute average.”
The premise is the ads are much more targeted, so they’re worth more. This may be true, but budgets have been very slow to flow to the streamers. “You have to have the ability to empower advertisers to use their first-party data and that’s [using] clean rooms and the importance of being able to match data in clean rooms,” says Josh Mattison, SVP of revenue management and operations at Disney. “I would say more than half of what we’re doing right now is targeted advertising.”
The Roku World
The next step is for advertisers to decide if one environment or another is where they want to spend their budget. In other words, which kind of silo do they choose? Each tends to have its own measurements, identifiers, targeting capabilities, and even ad formats.
“What we find is that people are going in and out of the various streaming apps to binge-watch their favorite content and then removing that service so that they could save money every month,” Roku Media president Charlie Collier told an audience at CES 2024. “So in terms of the top ad-supported streaming apps on our platform, the average person is only engaging with that anywhere from 4 to 6 days.”
Collier went on to explain that “Roku is the largest television operating system in this country and in other countries, and we are not in the streaming wars, meaning we are not spending $20 billion and losing money. Half the broadband households in the country, before they do anything, they hit the ‘On’ button, and it’s a Roku journey that they’re taking.” The “half” he refers to amounts to 70 million active accounts.
“We did 100 billion streaming hours in the last 12 months,” Collier continued. This includes the company’s own Roku Channel as well as Disney+ and Netflix.
“The Roku Channel was the first ad-supported streaming app on our platform to deliver a significant amount of scale, because what we found at the time was [that] the number one search term on our service was ‘free,’” says Katz. Roku was FAST before FAST was FAST.
“We have 400 live channels within the environment, and, then, what’s even more powerful is that we can go to marketers and say, ‘This is what we know that customers of your brand are actually streaming on our service.’ We could even do it down to the search term, whether it’s individuals or even programming,” says Katz.
The Disney World
Disney’s experience with ads shows some similarities to Roku’s, even though their tech stacks were built years apart. “We’re servicing almost 10,000 advertisers across our business. The scale that we’re operating at ranges from Procter & Gamble and Home Depot all the way down to local advertisers who are trying to build direct-to-consumer businesses,” says Mattison. “They were looking for options outside of Instagram, so, we’re giving them the automated tools.
“We’re bringing these targeting tools into our automated solutions, not just programmatic, but also our Disney Ad Manager, which is our self-service tool,” Mattison notes. Disney is introducing an ad stack that will eventually sell across all streaming services. For now, that means Disney+ and Hulu. The company’s pitch is that both the consolidated marketplace and self-serve features will enable large and smaller brands to advertise with Disney. The self-serve will offer programmatic purchasing, and Disney will also continue to sell direct I/O and guaranteed.
“We’re in a unique position in that we own the entire technology stack, from the application to the video player, to the advertising stack and ad-insertion capabilities. It allows us a lot of direct technical control over what the consumer sees when they’re viewing content,” says Amy Lehman, SVP of advertising platforms at Disney. “We think this is really differentiating because it allows for a lot of personalisation, not only in when the ads are shown, but the format in which the ads appear.”
While the messages may sound similar between what Roku and Disney offer, Disney has a wider variety of targeting data simply because of the nature of its businesses. Another debate: is viewing or overall consumer data better? This is more of a philosophical question that’s beyond the scope of this article.
Data Targeting
As a venerable consumer-facing company, Disney has extensive amounts of data about its consumers. To this end, it is promoting its identity graph so that buyers can be more laser-focused on finding the right audience. About half of its ads are targeted, and the other half are based on contextual data. Targeting is something that Disney is currently focusing on. “I would say more than half of what we’re doing right now is targeted advertising,” says Mattison.
Dana McGraw, Disney’s SVP for audience modeling and data science, describes her company’s identity graph as “the foundation for all of our ambition. It’s the backbone that allows us to find, activate, and measure against a specific audience. Our graph connects the dots on how viewers consume content from linear digital streaming and so much more to better understand behaviors and preferences and deliver global audiences at scale.”
McGraw’s ad-measurement team, she says, has “identified nearly 2,000 audience segments. You can activate these segments through a product we call Disney Select. These first-party data segments consistently outperform traditional second- and third-party data segments. We are drawing from hundreds of thousands of attributes that range from content visitation to psychographics to purchases.”
Disney has recently added new audience personas, which include adult animation aficionado, original hooligans, sample streamers, Annie Mayhem, and family fun. “We have a vast understanding of these streamer personas, so we know not just what anime our animation streamers are into, but whether they’re in the market for a car,” says McGraw.
One issue that Disney did not address at CES 2024 is the fact that its content is viewed by a lot of children. Targeting children with advertising is much more regulated than targeting adults. The Children’s Online Privacy Protection Rule (COPPA), prohibits organisations from collecting personal identifiable information (PII) on children younger than 13. “In platforms such as Disney, you have this issue where the majority of users outside of Hulu are going to be falling into that COPPA-compliant age group where you can’t collect data on the ads that you serve,” says Velvet Hammer Consulting’s Jones, who is also a former Disney advertising VP. “Therefore, a lot of the advertisers want a lower CPM because they’re not going to be able to get that data.”
Curating
Previously, Roku’s Collier says, exclusivity was one of the key driving forces for cable and broadcast’s value proposition to advertisers. “Now you can take those channels, but you can also take individual shows and curate them. I don’t have to tell you—as somebody who grew up in the cable business—how much of a paradigm shift that is.”
Roku’s pitch to consumers and advertisers alike is that it hosts the experience of television. Because Roku is both a creator and a programmer, this can mean developing theme-based navigation of the content a consumer wants to see, even if this includes content from various media companies. “We have all sorts of first-party insights that show that our customers only want to spend a certain amount on their various services between Netflix and Apple TV+ or Max, etc.,” says Collier.
One of the challenges Roku faces is that consumers may head off to their favourite streaming app before the company is able to monetise them. Roku’s home screen has been one way that it has targeted consumers. “Typically, the inventory on our home screen has been reserved for our media and entertainment partners to promote their programming or their services,” says Roku’s Katz. “Now we’ve opened up that inventory to various restaurant brands, automotive brands, or travel brands.” Roku currently offers these home screen ads in a display format, with plans to move to video. “On a given day, we could reach 60 million households through inventory on our home screen,” notes Katz.
One sure way to stand out is by creating an interesting ad unit. Roku developed a screen saver, Roku City (Figure 3), where a rotating city with subtle branding moves across the screen, displaying an ever-changing environment. Katz says this has generated a lot of social media buzz. Watching the screen saver roll by is captivating. Kudos to Roku for creating an ad format that many viewers will not only watch, but also really like.
Figure 3. Barbie comes to Roku City
Ecommerce Ads
A number of companies have jumped into the shopping format ad game. Tech developer TheTake built an ecommerce feature that integrates primarily with TV operating systems (starting with LG). It has also announced a partnership with DAZN that allows viewers who are watching any show to turn on the ecommerce feature.
At CES 2024, TheTake demoed the feature on a Telly TV. This TV integrates an ad-supported second screen below the primary viewing screen. Telly plans to give the TVs away for free and have the advertising support the cost of the set, plus the ad revenue. “Our system is running on top of this Telly device to recognise what the program is and then pull the products in,” says Tyler Cooper, founder and CEO of TheTake. At CES 2024, Cooper demoed products that could be found in a Netflix movie as well as an NBA game on YouTube. “We’re not getting any of that information from Netflix or from someone like that,” he explains. Viewers are able to see and purchase products that match those featured in a show or buy something similar. You can either scan the QR code or pick your size and purchase with TellyPay.
“We’re sourcing from multiple retail and advertiser partners,” Cooper continues. Telly gets paid on a CPM basis, as well as for conversions. Recently, it did a campaign with Under Armour on LG TVs. “They paid us to surface the exact shoes that Stephen Curry was wearing on any given night,” says Cooper. “When he hit a buzzer beater or a big three-point shot, we would expose our interface with his shoes at the top and say something like, ‘Lace up like Steph with the Curry Flow 10,’ or whatever shoe he had on.”
Measurement
Measurement has always been a pain point for media content monetisation. This is an area that likely will continue to be somewhat siloed for the foreseeable future. There is little incentive to support a single universal measurement when several of them continue to crowd the ecosystem. Nonetheless, we can spot a few pockets of measurement success.
“We actually target based on the device,” says Roku’s Katz. “You also create a Roku login, and we won’t frequency-cap based on the channel level. We’ll frequency-cap based on the device, which is really powerful.” Translation: consumers should see less (or even no) repetition of commercials on Roku.
“You tend to hear a lot of ‘Hey, did someone see my ad?’ ” says Disney’s Mattison. “We’re only transacting on a completed video view, and that’s verified through third-party sources.” This measurement benchmark is considerably higher than the standard set by the Interactive Advertising Bureau (IAB). To qualify as a viewable video ad impression under IAB guidelines, only 2 continuous seconds of the video advertisement need to be played.
Measurement standards for digital and linear also continue to diverge, and this may be another reason why more advertising hasn’t moved to digital. According to NBCUniversal’s Marshall in his CES 2024 presentation, his company is working on ways “to bring linear and digital together instead of bifurcating it. You’ll be able to see what percentage was delivered on linear, what was delivered on digital, and where the overlap was. That’s never existed before.”
The Wrap
So, what’s changed with video content monetisation? Almost everything. Consumers went from linear viewing with ads a long time ago, to buying subscriptions to watch content from discreet media companies, to buying subscriptions from discreet media companies to watch content with ads, to each platform only distributing its own content, to now trying to figure out why several services might have the same content and if you can watch the shows you want to see with the accounts or subscriptions you have. And we’re just arriving at the point where, if multitasking is your thing, you can buy products as you watch content.
While all of this is going on, consumer data has been captured, analysed, and packaged for brands to use to target consumers with better ads. Now these ads can also come not just from the top brands everyone knows, but from smaller brands that might never have considered this kind of advertising. In terms of measurements, there are a number of options. Each service can provide the version it has, but good luck comparing it to another service’s data. And on the subject of data, I’d like to see each company break out costs on what consumer data it has collected and what value it puts on it.
Whether to build or buy your ad tech is another topic that comes up frequently. At this point, I’m not sure it matters. Delivering creative ads that consumers want to interact with is key. Do you need to own that IP, or can you work with a partner to deliver it? Typically, the choice comes down to how profitable this all works out to be, and without a crystal ball, it’s another question that remains up in the air.
Even The New York Times acknowledged in January that we have reached the end of the Peak TV era. Never again will so much content be produced, which really may mean a bit less choice. While this is sad for actors, producers, and people who work in film and TV production, gold rushes don’t last forever. And when one of the biggest problems consumers have is too many choices when looking for something to watch, you know that things have gotten out of control.
So, what does the future of streaming monetisation look like? This post-Peak TV media ecosystem is a brave new world, and being able to find the content you want, with the price you want to pay, will likely keep consumers on their toes for years to come.