Monday, June 27, 2022

Coming soon to a streaming service near you: Ads

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Reed Hastings was consistent, year after year. Every time someone asked the Netflix CEO when he would introduce ads on his streaming service, he insisted there was no point. Netflix was a better service because it had no ads, he would say.

That was when Netflix grew. Now it’s getting smaller — and now Netflix says it’ll have ads: Last month, after announcing that its company was losing subscribers for the first time in a decade, Hastings told investors he wanted to introduce a cheaper version of the service that would have ads”in the next two years”, although he was unclear about the details. “I’m sure we’ll just go in and figure it out.”

There is a lot to find out. This week, Netflix moved the timetable and told employees that ad tier could be rolled out before the end of 2022

All of this underscores a significant change in the way streaming video companies view their business — and how some people start to watch TV and movies. TV advertising, which seemed destined to become a remnant, is suddenly alive and well again, even with services that once had their identities on the line due to the absence of advertisements. For example, last year HBOMax started selling a lower-priced tier of ads; Disney+ is adding one this year

It’s a stunning turn of events for an industry that seemed like it was sprinting away from ads as quickly as possible — in part because it followed Netflix’s anti-ad lead. But if you take a step back, there are two easily understood reasons why streamers are embracing ads, voluntarily or reluctantly:

  1. Even in 2022 there is a huge amount of money in TV advertising, and it is still growing: Media agency Zenith predicts advertisers will spend $65 billion on TV ads this year, up 4 percent from last year Even in 2022, people are still watching a lot of TV programs. But they are increasingly watching it via streaming services on their TVs – streaming services now account for 30 percent of TV time, according to Nielsen. So advertisers want to fish where the fish are.
  2. The streaming wars are expensive to fight. All the new services chasing Netflix are putting billions of dollars into programming to attract and retain their subscribers. Networks and studios used to have multiple ways to monetize programs — advertising, cable TV subscription fees, and syndication — but the new model removed all those ways of giving consumers a single fee. Adding ads is a way to bring in more money and/or increase profits, which is becoming increasingly important for investors.

What’s a little harder to understand is why the streaming TV ad experience — for the people who pay for the ads and the people who have to watch them — is still bad.

Conventional TV advertisers know exactly when and where their ads are showing, and at the very least feel like they’re reaching a lot of people with one purchase. But while streaming platforms offer the promise of more data and better targeting, advertisers are dealing with a confusing array of different programmers, ad servers, and platforms.

Streaming TV viewers, meanwhile, will encounter non-skippable ads that often repeat multiple times per show and often seem to be randomly stitched into TV shows or movies for no rhyme or reason. They are often way too loud – so much so that US lawmakers have proposed to regulate them† All this in a medium that had to be more personal and smarter than old-fashioned TV. Instead, a lot of it seems as stupid and scattered as the spam in your inbox.

“We’ve brought everything the Internet has taught us about how to make ads worse to TV,” said Joe Marchese, a former Internet and TV advertising manager (he sold his TrueX business to Fox in 2014) who is now renting Human Enterprisesa start-up investment company.

“There’s a huge flaw between how digital ad technology has evolved and what it takes to be successful in a TV environment,” said Dave Morgan, a longtime digital ad executive whose current company, Simulmedia, works with conventional and streaming TV. advertisers.

What makes it somewhat puzzling is that Netflix, which had long made ad-free streaming a core part of its brand, is now rushing into advertising, seemingly without much planning and no apparent infrastructure. Ditto for Hastings’ comments on revenue calls, suggesting he might want to outsource much of the work to “other people [who would] do all the fancy ad-matching and integrate all the data about people so we can stay out of that.” That’s because most of the TV industry people I speak to argue that the worst aspects of the streaming ad experience stem from the maze of intermediaries between advertisers and streamers, often making it hard to figure out where, when and how ads land on your screens.

None of that fits with Netflix’s history of struggling to control every part of its service – from creating its own distribution system in the days when DVDs were made by mail, to building out a sophisticated system to deliver streaming video. . So either Hastings has a plan that he’s working out quietly, out of sight of the ad industry, or he’s quickly winding up something to support Netflix’s earnings and stock price. Both scenarios would be surprising.

Before we go any further, if you’ve gotten used to ad-free streaming on places like Netflix, Disney+, and HBO, don’t worry, as long as you’re willing to pay. All of these companies have or are working on a tiered service, with the most expensive versions being ad-free and the cheaper ones being ads.

But many of the new — and fastest-growing — services are built explicitly to carry ads, such as Comcast/NBCU’s Peacock, Paramount’s Pluto, and 21st Century Fox’s Tubi. The tech-based TV companies are also increasingly interested in ad-supported streaming: Amazon has something called Freevee, which used to be called IMDb TV; Roku has its own free Roku channel, currently filled with scraps from the bargain bin (and those Quibic programs you’ve never watched) but may one day include programs from the pay TV channel Starz

None of them are inherently bad. Programmers rightly claim that ad-supported streaming can give consumers more choice about what to watch and how much to pay for it.

And some advertisers say they are very happy with the benefits that digital TV advertising can bring. Sam Bloom, the CEO of Camelot Strategic Marketing & Media, says he spends about $200 million streaming TV ads for his clients and is pleased that the technology is allowing him to clean up some trash.

For example, Roku uses “Automated Content Recognitiontechnology on its smart TVs that allows it to track what people are watching, whether it’s from a streaming service or cable or even over-the-air TV. That may seem creepy, but for Bloom, it’s a plus: it allows him not to show ads to viewers who’ve already seen his customers’ ads, or allows him to target customers who see ads from his customers’ rivals. have seen.

Still, even the most optimistic digital TV booster will admit that streaming TV ads still has a long way to go. “It’s in a tough adolescence phase,” a director of a major streaming technology company tells me. But with the money pouring in, it’s not clear how that will happen anytime soon. “Yeah, you’re going to see a lot of tweets about ‘I saw something and saw the ad three times and I hated this experience,'” said one executive who runs a major ad-supported streaming service. “But that person was still looking at it.”

Thank you for your feedback about mine recently submissions† I don’t respond to all of your notes, but I do read them and will include them here from time to time. And let me know what you think of this week’s column — or anything else. You can @ me on Twitter or send me an email: kafkaonmedia@recode.net.


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