Plateauing subscriptions push EU streamers to Freemium and consumers like it
Almost all major streamers have launched ad-supported services (Apple being the main exception) as they look to diversify their revenue streams in markets which are already saturated with SVOD. These ad models are succeeding in converting existing subscribers and growing overall subs numbers, as is evidenced in Germany. GroupM's Consumer Evolution Detector study for the fourth quarter of 2024 found the proportion of German subscribers to low-priced streaming platforms with advertising had grown by 33 percent to a total of 32 percent year-on-year.
Despite their continued top position, higher-priced streaming subscriptions without ads are experiencing a downward trend. The advertising group also found that, compared to the previous year, the use of ad-free offers has fallen by almost 13 percent to 54 percent.
Ad Free Subscriptions in Decline
Looking ahead, the willingness to take out a high-priced streaming service will be rather low among previous non-users (15 percent), said the report. Ad-financed offers show significantly more development potential in comparison: Around a quarter of Germans who have not yet done so want to use a free streaming provider with advertising in the future, and around a fifth want a low-priced ad-financed streaming subscription.
While all majors markets in Europe are experiencing this trend, Germany is particularly competitive when it comes to TV services. “Freemium represents a way for premium services to compete,” says Annabel Yeomans, Research Manager, Ampere Analysis. “For example, DAZN is offering a free tier which is likely a way to encourage subscriptions while it's in competition with broadcasters like ARD and ZDF and premium providers like Sky. Local services like Joyn are likely to have a similar strategy in order to compete with global giants like Netflix and Amazon Prime Video.”
Germany also sees relatively high levels of price sensitivity, so free tiers are a way to encourage consumers to "try before they buy." Ampere data shows that the average revenue per subscription (ARPU) for subscription video services in Germany is lower than it is for the other Big 5 markets, suggesting that providers are finding the need to operate at a lower pricing strategy.
Following the DAZN Germany Model
DAZN Germany represents a test case as to whether this is likely to see uptake in other markets. “Whether it will be replicated in other markets will depend on how successful it is as a trial and if providers feel that the market conditions are similar to those in Germany,” says Yeomans. In Germany, Amazon Prime Video’s ad-supported tier remains the market leader, with a 20% share, but Netflix’s basic ad-supported plan is closing the gap, growing its reach to 17%. Other platforms such as RTL+ (14%), Joyn free (11%), and Disney+ with ads (11%) are also competing for market share.
“Cheaper streaming offers with advertising have their finger on the pulse. With attractive tariffs, they have become a serious alternative to ad-free streaming subscriptions,” says Nicole Ferguson, MD at GroupM. “For advertisers, this opens up new potential for reaching potential customers through targeted advertising.”
Global Ad Tier Outlook
Cost-conscious consumers are not unique to Germany. A PwC report, Global Entertainment & Media (E&M) Outlook 2024-2028, highlights the role of ad-supported tiers as well as password sharing crackdowns, the introduction of live sports, and industry consolidation as streamers look for other sources of income in the years ahead.
The outlook, which covers 53 countries and territories, projects that global Entertainment and Media revenues will hit $3.4 trillion in 2028, growing at a 3.9% CAGR. Most notably, advertising revenue is set to hit $1 trillion in 2026 and to account for more than half (55%) of total E&M industry revenue growth over the next five years. By 2028, advertising will account for about 28% of OTT global streaming revenues, up from 20% in 2023.
In the UK, for instance, PwC forecasts that ads will account for 30 percent of UK streaming revenues by 2028, up from 24 percent in 2024. Looking beyond streaming, the UK’s wider entertainment and media (E&M) market (including film, TV, gaming etc) is due to expand by 4 percent CAGR over the next four years, per the PwC reports.
Total revenues are forecast to overtaking Germany in 2025 to become the largest E&M market in Europe. UK E&M revenues are expected to reach £121 ($150 billion) by 2028. In the UK, advertising makes up 39 percent of the E&M market, compared to 29 percent across Western Europe. And the UK ad market is the most digitally mature in the region, according to PwC; internet advertising represents 80 percent of total ad revenues, compared to 66 percent across Western Europe.
Meanwhile, Netflix’ recent Q4 figures reveal significant growth to its with-ads plan with over 55% of signups in ad-supported countries (including Western Europe) and ad revenue doubling year over year. It added 19 million globally in the last quarter. Netflix Co-CEO Gregory Peters highlighted that Netflix's ad-supported plan had engagement levels similar to non-ad plans, that the focus is on improving the offering for advertisers to increase monetisation and that the streamer plans to double ad revenue again this year.
As yet, Netflix has not announced similar price hikes in Europe to those introduced in the US, which may yet put a dent in ad-tier take up. On the earnings call Peters said the streamer still had “considerable work” to do in maximising ad monetisation. “We are confident we can continue to grow revenue at a solid pace and earn a growing piece of that over USD25 billion (global) in CTV ad spend.”
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