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Streaming price point should drop with increased ad spending

In light of Wednesday’s research survey released by SpotX, the price point for streaming services should only decrease thanks to massive advertising arrangements.

Roku’s programmatic platform senior manager Dylan Moorhead Jr. commented on the drastic way ad spending is changing the game:

Over time, we believe that TV advertising will become more targeted and frequently traded programmatically as brands shift their budgets into OTT, or risk missing a large portion of their audience who are no longer found on linear.

Spot X (h/t Cord Cutters News)
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Concerns about the increasing cost of cord-cutting ought to be short-lived. Although the emergence of new platforms has inflated the overall streaming price point, it’s just a temporary expense while industries adjusts to the home entertainment revolution.

Majority of consumers tolerate ads

According to the Spot X’s data from Samsung, 61 percent of consumers already watch advertising-based video on demand (AVOD). No doubt, part of the incentive to deal with ads is to view free content.

Hulu used to be this way when it offered free service until it converted to subscription video on demand (SVOD) like other major streamers. However, the study projects ad spending to continue increasing in 2020, with $4 of every $5 spent on private-channel programmatic ads.

Current AVOD services such as YouTube, Sony Crackle, Roku Channel, TUBI and Vudu will continue to reap the rewards of this trend. But is it a sign of what’s to come in streaming at large?

Streaming giants should follow suit

Streaming hosts like Netflix, Amazon Prime Video and now Disney+ have price point leverage. They’re so big that they don’t need to be AVOD, and can offer content without needing ads.

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But these programmatic ads, with rampant spending only bound to increase, present avenues SVOD services should explore.

If most consumers are willing to sit through ads for free content, why not take that in stride? What would someone rather have: a $12.99 per month subscription to Netflix with no ads, or a free subscription with occasional ads?

Netflix has spend so much on original content and is far behind the 8-ball in terms of profit margins. Its competitors are showing similar fiscal aggression. Given how much advertisers are willing to spend, it only makes sense to alter the business model.

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HBO Max launches in May and doesn’t expect a profit until 2025. And that’s with an industry-high price point of $14.99. Granted, it comes with a lot of content, yet that’s asking a lot from subscribers.

A win for all involved

To further tie in Wednesday’s findings to industry trends: Ethan Heftman, senior vice president of Precision and Performance at A+E Networks, argues AVOD is the way of the future, and that SVOD business models are best for niche content.

Provided the entire streaming and cord-cutting movement pivots to accommodate this influx of advertisers, everybody wins.

Advertisers can more easily target specialized groups they want to market to. Streaming services have plenty of suitors and full say as to who and what they want to include as part of their promotions.

As for consumers, the status quo remains for AVOD services — but with more upside. That is, added chances for original programming and preexisting content. If SVOD services go this route in some form, that same potential for additional original content and purchasing power exists.

Home entertainment viewers have tolerated commercials since the dawn of television. Maybe it’s worth it again if subscription fees evaporate.

Please follow us on Flipboard and Twitter for more news, rumors, and reviews. If you prefer Facebook or LinkedIn, we’re there as well and would love to talk streaming content with you and our group of friends.

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