The video streaming subscription plateau is coming - here's where advertising comes in

Coca-Cola placement in Stranger Things

It’s time for the subscription video on demand (SVOD) sector to adapt, we're all aware of them, and we all use them. It's time for them to start making some money from advertising - before it is too late, claims Alex Vale, head of J3 Northern Europe at UM London.

YouGov research in the TV category shows that awareness has never been higher for SVOD platforms. Of the UK market share, Netflix tops out at 27%, followed by Amazon Prime Video at 22%, then newcomer Disney+ at 18%. This is followed by Sky at 17% and BBC iPlayer at 17%.

The pandemic has driven rapid changes in consumer behaviour, so naturally, streaming platforms have been quick to capitalise on an increase in demand for content and entertainment in the home.

Now we are firmly in the era of streaming wars.

Growth

Covid-19 curated favourable market conditions for the launch of Disney+. It achieved 16.8% market share in just one month, hugely surpassing original forecasts set by Ofcom. Preceding the pandemic, Netflix had growth concerns that subscriptions would plateau. Instead, the favourable conditions drove an increase of almost 16 million people in the first three months of the year, almost double that of the same period in 2019.

The entertainment category isn’t alone in seeing the value in owning the relationship with the end consumer. More DTC offerings are coming to market, driving fragmentation while increasing the pressure to deliver high-quality original content. But content alone isn’t enough.

Newcomer Quibi was the talk of the town and touted as the next era in SVOD. New new short-form original content from the likes of Spielberg set to entice new users. Fast-forward six months and, after a honeymoon of free trials, Quibi lost 92% of its audience, leaving its future in question.

Competition

The SVOD market subscription battle became intense faster than anticipated. But not all new habits last. Linear TV viewing has already dropped back down to 2019 levels, so what does the future hold for SVOD? Will short-term successes sustain? Or, as disposable cash comes under more scrutiny, have we hit a subscription ceiling?

According to Deloitte, consumers subscribe to an average of three paid-for platforms, which presents a challenge for the sector as availability outstrips demand. Surely there isn’t enough room for all to succeed? There could be another way.

There are billions and billions of pounds of ad investment up for grabs, not just the £3.8bn of TV revenue, but the likes of Google, Facebook, and gaming all have a slice of the pie that SVOD platforms could make a grab for. With this sizeable carrot, and the likelihood of post-pandemic subscription growth coming to an end, now is the time for the SVOD giants to think beyond their subscription base. Deloitte reports that millennials combine paid and free streaming video to piece together the content they want.

The opportunity

When we look to adjacent entertainment categories such as audio, other platforms, such as Spotify, have long offered a dual-tier made up of ad-funded and premium services - an obvious route that SVOD platforms could take. The likes of Samsung and Roku are introducing new buying routes, such as AVOD, to access the big screen, and Amazon is quickly monetising IMDB content.

The big SVOD players (unlike their local counterparts) are part of huge global companies who are tech powerhouses in their own right and, unlike traditional broadcasters, SVOD owners have flexible platforms with the freedom to evolve as they desire. Technology enables opportunities for SVOD platforms to monetise beyond the subscription.

In the US, programmatic product placements provide a non-intrusive opportunity for brands, switching out original props for branded props, or adding outdoor posters into the shot post-production as a canvas for those who want to be associated with the content. The global mega-brands that occupy the SVOD space now have the opportunity to disrupt the landscape by introducing new models, unique formats, and offering partnerships to drive incremental revenue.

Recently, we have seen opportunities like virtual viewing parties. Could Apple TV offer a chat function so that the experience could be shared? Could this be a commercial opportunity for the likes of Just Eat? If cinema dates are on hiatus, could Netflix partner with Tinder to offer a virtual alternative?

‘Freemium’ is another interesting area. Is there a middle ground where we see curated themes of content sponsored by brands, or a ‘watch this ad to unlock’ function for a series? If SVOD platforms do choose to diversify, it will be a question of striking the right balance: a genuine value exchange where brands enhance the user experience rather than disrupt it.

Brands should now also be thinking about how to better utilise the AV ecosystem, exploring new entrants and the role they play in the consumer journey.

SVOD platforms might be winning when it comes to driving awareness scores, but surely that isn’t enough anymore.

Alex Vale, head of J3 Northern Europe at UM London.

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