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State of the Screens

The Great Connected TV Debate: Subscription- vs. Ad-Supported Models

By March 20, 2018No Comments

Three business models are emerging in the connected TV space including:
1)
Advertising only (Crackle, etc.)
2) Subscription only (Netflix, etc.)
3) Advertising + subscription (Hulu, etc.)

Quick math: An ad-supported network with $25/CPMs generates$5/month in revenue for every 4 hours of view time.

Big idea: Most of these premium streaming services will offer addressable advertising against customer data which will command CPMs closer to $100. That would change the above to $20 in revenue for every 4 hours of view time.

The big question: How many unique streaming services can be supported with subscriptions compared to those that have to survive off of ad revenue alone?

Flashback: A Rising SVOD Tide May Not Raise Subscription Prices

% of Netflix subscribers who also subscribe to Amazon/Hulu:
1) 2014: 10%
2) 2017: 21%

Some are projecting that advertising exposure could decline 30% over the next 5 years.

Quote from Rishad Tobaccowala — Chief Growth Officer @ Publicis Groupe:
“We are so disrespecting people’s time that they are spending more and more time in advertising-free environments… We don’t value their time… You’re asking me to give you my time for less than minimum wages, which is not worth my time,”

Flashback: Fox Wants to Reduce Ad Time to Two Minutes per Hour by 2020

Current/Proposed ad time per hour (% change):
1) 2018–13m
2) 2020–2m (↓ 85%)

The big question: How much will a reduced ad supply impact pricing?

Facebook changes for January 2018:
1) Impressions — ↓ 3%
2) Ad prices — ↑ 122%

Average view times for NBC’s “The Voice”:
1) Video-on-demand — 51m
2) DVR — 48m
3) Connected-TV — 43m
4) Live/linear — 35m

Quote from Mark Marshall — EVP of Entertainment Ad Sales @ NBCUniversal :
“It’s the same show, it’s the same piece of glass, so why are they watching longer on digital properties? Part of it is because there’s a lower ad load on that side… The whole goal is to make TV look more like digital TV.”

More: Netflix will never host advertising or enter battle for live news and sport, CEO says

Michael Beach

Michael Beach

Michael Beach is the Chief Executive Officer of Cross Screen Media, a media analytics and software company that enables marketers to plan, activate, and measure CTV and linear TV at the local level. Michael is also the founder and editor of State of the Screens, a weekly newsletter focused on video advertising that is a must-read for thought leaders in the advertising industry. He has appeared in such publications as PBS Frontline, The Wall Street Journal, The New York Times, Axios, CNBC and Bloomberg, and on NPR’s Planet Money podcast.