Will The Rise Of Subscription Services Usurp Ad-Supported Video?

SubscribeWhile the rise of subscription video services won’t lure all consumers away from ad-supported offerings, it represents a disruption to current business models – partially driven by ad blocking and consumer demand for better experiences.

“If you think about all of the content we consume that is supported by an advertising model, if a consumer had to pay for it discretely, you wouldn’t complain about a $100 cable bill anymore – you’d be complaining about $1,000 worth of content,” said David Mendels, CEO of Brightcove, a platform used by publishers like Vox and Gannett to distribute and monetize video.

“There’s a need for both ecosystems to be healthy.”

While the subscription model is not new, video rollouts like Hulu Plus and YouTube Red underpin publishers' race to add commercial-free models to their traditional, ad-supported businesses.

When Hulu launched its subscription offering, there were initial concerns it would encroach on the already-established ad-supported service. But that hasn’t been the case early on. 

“A vast majority of people who sign up for a subscription are choosing limited commercial versions,” said Peter Naylor, SVP of global advertising for Hulu, at Modi Media’s recent addressable TV summit. “This shows us there’s a large part of the population who accept ads and, dare I say, like ads.”

Subscribers have a certain characteristics that transcends age or gender. Naylor said it comes down to an interest in and receptivity of ads.

“Some people would rather give their email address in exchange for content than spend 30 seconds watching an ad,” added Marc Rothschild, SVP of Meredith Digital, Sales. Meredith recently developed an ad-free version of its fitness-focused SweatTV video channel, in which viewers can either subscribe or watch a 30-second pre-roll ad in exchange for 24 commercial-free hours.

Publishers are exploring routes that allow consumers to pay with money, information or time. Hulu, for instance, began giving viewers the option last week to select a 30-second ad (as opposed to the standard 2 minute and 30 seconds of commercial load time) powered by true[x] in order to access content with less disruption.

“We’re touching over 70 million consumers and we want to keep people coming back to our owned and operated properties,” Rothschild noted. “Sometimes giving consumers ‘choice’ is all that matters in building loyalty. Consumers don’t want a lack of control.”

The subscription model works more effectively for publishers with highly specialized content and niche audiences. For instance, streaming video platform Acorn TV appeals to fans of British TV, Crunchyroll caters to Japanese anime enthusiasts and SweatTV was designed for fitness fanatics.

“The Metropolitan Opera even has a streaming video subscription service, which is absolutely beautiful … for people who love the opera,” said Brightcove’s Mendels.

While YouTube’s video subscription represents new monetization potential for Google, experts predict it is more likely to coincide with ad-supported revenue than to overtake it. The reality is, it won't be economically viable for a consumer to subscribe to 20 different services, Mendels said.

OpenSlate, a company that helps brands identify high-performing audiences on YouTube, found there were four times more ad-supported channels on the platform compared to last year, increasing from 146,000 to 837,000 channels.

That growth is promising for a publisher, despite the fact that it’s often more cost-effective to retain a recurring customer via subscription than to acquire a new one through audience monetization.

“I don’t think [a subscription service] would have any impact on their ad supply,” predicted Mike Henry, CEO of OpenSlate. “The numbers would have to be so stratospheric that they’d have to have 100 [million] to 200 million people sign up for Red to really put a dent in their ad inventory.”



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