"On TV And Video" is a column exploring opportunities and challenges in advanced TV and video.
Today’s column is written by Francis Turner, co-founder, US general manager and chief revenue officer at Adyoulike.
Though subscription video services are signing customers fast, spiraling costs may soon force them to rethink how they make their money.
Take Netflix, for example. In January, it described its last-reported quarter to investors as “beautiful,” lauding how 24 million new memberships through 2017 helped annual streaming revenue rocket 36% to more than $11 billion. Look further down the balance sheet, however, and there is a problem.
The company plans to increase spending on content, technology and marketing this year to a combined $11.3 billion. Netflix is taking on more debt – $6.5 billion last year alone. It’s not just Netflix. Amazon Prime Video, too, is considered to be significantly loss-making, though deep-pocketed Amazon likely sustains it through ancillary purchases.
The US is a world leader in subscription video. Subscription VOD penetration hit 84% of households as early as 2016. But to keep growing and sustain their growth in the face of heavy outlay, services need to diversify their revenue streams.
Thus far, these streaming services have been an ad-free experience, with nothing getting in the way of quality content. That is fine for consumers with the means to pay. But once the providers reach the ceiling of that addressable market, where will their growth come from?
Many other content services, like Spotify for music, manage to balance both ad-funded and subscription offerings.
Today, advertising may be anathema to subscription video providers and their consumers. But Netflix could make up to $270 million per quarter from pre-rolls or $2 billion a quarter from a TV-style ad experience, according to numbers from Ampere Analysis in 2016, when the Netflix viewer base was far smaller.
They don’t have to jam interruptive ads into their programming, like TV networks before them. There is another way. In fact, there are three other ways.
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