With Ad-Supported Streaming Revenue Exploding Will this Lead to a Netflix Ad-Supported Tier?

Whether it is a subscription video-on-demand (SVOD) service launching an ad-supported tier or the launch of a new free, ad-supported television (FAST) platform, ad-supported streaming is big business. With Disney+ announcing that it would join Hulu, HBO Max, discovery+, and other streamers by offering a lower-cost, ad-supported subscription tier later this year, it is clear that services are looking to cater to the streaming consumers who are more than willing to watch commercials if it saves them money.

And while the content might be cheap or even free for viewers, it can lead to a lot of money for services. A report from PricewaterhouseCoopers and the Interactive Advertising Bureau indicates that video ad revenue in 2021 totaled $39.5 billion, an increase of $13.3 billion over the previous year. The findings also show that ads around video content accounted for nearly 21% of the $189.3 billion across the entire digital advertising industry last year.

With the influx of advertising dollars into the streaming world and their slowing domestic subscriber numbers, many have wondered if recent changes in the industry will lead Netflix to finally add an advertising-supported option for consumers.

While the company has said that it is theoretically open to the idea of offering a lower-cost, advertising-driven tier, now is not the right time. However, in recent interviews surrounding his departure as WarnerMedia CEO following the company’s acquisition by Discovery, streaming service veteran Jason Kilar predicted that the streaming giant would have no choice but to introduce advertising in the next three years.

With over 221 million subscribers worldwide at the end of 2021, there are only so many more people that Netflix could potentially bring into their subscriber pool, and their recent actions indicate that they are well aware of this. With the streamer testing ways to crackdown on password sharing, they are clearly looking for ways to raise revenue that don’t revolve around their typical customer acquisition model.

If the streaming giant continues to explore other options to increase revenue, adding a lower-priced tier would make sense as it would allow customers who might have felt priced out by the streamer’s traditional pricing structure to come under the Netflix umbrella.

But adding low-cost options to SVODs isn’t the only way that streamers can make advertising money. According to Tubi’s annual audience report, the audience for free, ad-supported video-on-demand (AVOD) services will surpass that of SVODs by mid-2022 — now, Tubi is itself an AVOD, so take this data with a grain or two of salt.

The report indicates that, perhaps due to ongoing financial hardships created by the pandemic, the audience for AVODs (+16%) outgrew that of SVODs (+8%) in 2021 closing the gap between them to just 5%. Could this increase in customer comfortability with free streaming services possibly lead to a version of Disney+ or HBO Max that is completely free? It is possible; Peacock is free to many consumers via deals with various other companies, most notably for Xfinity cable subscribers, since they both fall under the same Comcast parent company.

If an SVOD spinning off an AVOD version of its service were to happen, one would imagine that it would not include all of the content that customers could get on the paid tiers, but perhaps the free service would allow viewers to stream a selection of popular shows and movies from the streamers’ archives, with the full library and all of their original programming only being available on the SVOD service.

This might be a great option for a streamer like Paramount+ that not only is investing heavily in new content, but also has the deep and rich archive of Paramount Studios.

Paramount does own FAST service Pluto TV and perhaps a further integration of this platform into the Paramount+ family could increase the already exploding revenue potential for the streamer.

Either way, as more and more households look to limit their spending on streaming services, streaming services will undoubtedly find more and more ways to make money on their content.