And now, a word from your streaming sponsor

With the pandemic-induced surge of subscriptions waning, major streaming companies are getting bullish on advertising. PHOTO: REUTERS

NEW YORK (NYTIMES) - The two titans of the video streaming wars - Netflix and Disney+ - have long resisted commercials.

"No advertising coming onto Netflix - period," Mr Reed Hastings, one of Netflix's co-chief executives, said several years ago, a point of view he repeated for some time.

In late 2020, Disney's chief financial officer Christine McCarthy said: "We don't believe that the consumer experience would be a particularly good one if we had advertising on Disney+."

But now, the streamers are starting to come around on Madison Avenue.

With the pandemic-induced surge of subscriptions showing signs of waning, major media and tech streaming companies are beginning to get bullish on advertising.

To reach more people - including those made cost-sensitive by high inflation and subscription overload - streamers are offering a deal: exposure to ads in exchange for lower prices.

Last week, Amazon doubled down on its free, advertising-supported streaming service, renaming it Freevee from IMDb TV and announcing plans to expand its programming budget.

HBO Max began showing ads over the summer and, since January, has had the same number of people subscribe to the commercial version as to its ad-free tier.

But the re-evaluation has been even more surprising at Netflix and Disney.

"Never say never," said Netflix's chief financial officer Spencer Neumann last month about the possibility of advertising coming onto Netflix.

The comments, though noncommittal, were enough to send investors and analysts, who had been raising warning flags about the company's slowing subscription growth, into a tizzy.

Disney has been even more abrupt in its change of heart.

Last month, Disney the company announced that it would introduce a lower-price advertising tier to Disney+ this year, explaining that it would be a "building block in the company's path to achieving" its subscription targets.

"When the streaming businesses started and the pricing was in the mid-single digits, there was no room or need because pricing was competitive and low enough," said Mr J. B. Perrette, the president of global streaming at Warner Bros. and Discovery, the new parent company of HBO Max.

"But content is expensive, and as the pricing for ad-free tiers has gone up - in the high teens level on some of these packages, and even Netflix moving up - it has to be paid for," he added.

The number of subscribers for ad-supported services has soared. By the end of last year, 129 million people used an advertising video-on-demand service, according to Insider Intelligence, a market research firm.

By 2025, the firm projects, that figure will rise to 165 million users.

Likewise, video advertising revenue shot up 51 per cent last year to US$39.5 billion (S$54 billion), according to the Interactive Advertising Bureau.

Some streaming platforms have run ads for years; Hulu has had ads since 2007, adding a commercial-free tier in 2015.

The company, which Disney owns, reaches nearly half of all connected television households in the United States, Comscore found last year.

For years, brands have wanted to advertise on platforms like Netflix. Instead, Madison Avenue often settled for product placement and the occasional brand partnership.

But with Netflix's growth slowing, many people inside the streaming industry say the company's turn to advertising seems inevitable. On Tuesday, the company reported that its subscription total fell by 200,000, to 221.64 million, in the first quarter this year.

"I suspect the religion that they currently have about not having ads will change in time," said Mr Jason Kilar, a former chief executive of WarnerMedia, on The Town podcast this month.

"I say that because offering consumers lower prices is a really, really good strategy," he added.

The idea of ads breaking up Bridgerton or Severance may be anathema to some viewers, but it is thrilling to many advertisers.

Mr Andrew Essex, a long-time advertising executive who runs the consulting firm GoingConcern, said the "streaming industry is maturing, becoming much more realpolitik, where they're saying to hell with the user experience - we need revenue, we will explore additional forms of monetisation".

He added: "It's basically game on."

Many companies are trying to expand their reach beyond traditional television, where a shrinking number of must-watch events are drawing softer ratings and an ageing audience.

Ms Kelly Metz, the managing director of advanced TV activation at the Omnicom Media Group, said the financial implications mean that the presence of streaming commercials is "fantastic news for anyone in advertising, and ultimately, fantastic news for the US consumer, who cannot sustain 15 paid subscriptions". 

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