As Wall Street hammered the stock prices of major streamers in 2022, free-advertising supported TV (FAST) streaming channels and ad supported streaming services (AVOD) emerged as the fastest growing segments of the streaming business.
Major streamers like Netflix and Disney who had once been staunchly opposed to advertising radically changed course in 2022 with launches of ad-supported services while long-time advertising funded streamers like the Roku Channel, Fox’s Tubi and Paramount Global’s Pluto TV ramped up their FAST channel offerings.
This could be good for the streaming industry’s bottom line at a time when many streamers are still struggling with hefty losses and slumping stock prices. As new ad-supported streaming tiers from Netflix and Disney+ roll out, Digital TV Research is predicting that global AVOD revenues from TV series and movies will reach $91 billion in 2028, up from $38 billion in 2022.
Meanwhile, S&P Global Intelligence is predicting total FAST ad revenues in the U.S. could approach $4 billion in 2022 and then more double to just under $9 billion by 2026 while Magna Global reported that AVOD/OTT grew by 18% in 2022 to $6.8 billion. By 2027, the big media buying company GroupM is predicting that connected TV advertising will account for one third of all TV advertising in the U.S.
Less obviously, the trend is important because the rise of FAST and AVOD services will boost the overall ad business. Today’s current bullish prognosis for advertising on streaming service contrasts starkly to the sentiment only a few years ago when many analysts worried that advertisers would be unable to reach younger audiences who are doing most of their viewing on ad-free services like Netflix, Disney+ and HBO Max.
“If you've got such a large population of people who are basically in non ad-supported streaming video services, and have basically opted out of the video advertising ecosystem…it’s a problem for marketers to get their messages out to consumers.that's a problem,” said Walt Horstman, senior vice president and general manager of advanced media and advertising at TiVo. In contrast to those worries, he now believes that the rise of advertising on streaming platforms will both strengthen the streaming industry and the overall U.S. economy.
The rise of FAST channels has also been facilitated by the creation of well established digital ad technologies and businesses over the last two decades. Those technologies allow FAST channels and AVOD players to quickly and inexpensively spin up new services and by addressable advertising technologies that allow marketers to finely target consumers and measure the effectiveness of their campaigns.
The shift towards advertising by Netflix could also help improve the measurement of cross-platform video. The launch of Netflix’s ad tier could get a company that has long been secretive about releasing data to be much more open with advertisers and work more closely with the overall TV and streaming industries to improve measurement.
For players like Netflix and Disney who launched ad-supported tiers in the fourth quarter of 2022, ad-supported offerings will help them attract and retain budget conscious consumers who are trying to reduce hefty steaming bills. In Q3, for example, researchers at Antenna reported that there were 32 million cancellations of subscription video streaming services in Q3 2022 among the 10 major SVOD services and that the record number of cancellations reduced sub growth to just 3.5%. Another survey from Bango found U.S. consumers are overwhelmed by all the options with 72% saying there are “too many” subscription services available today, according to a new study from Bango.
But it isn’t clear how many extra subscribers Netflix and Disney will be able to attract to their new advertising tiers without cannibalizing existing subs. One study found that nearly one in four Disney subs will switch to the lower-cost ad tier.
The shift to advertising also comes at a time when the economy and overall ad business looks increasingly shaky. YouTube, Facebook and other major digital advertisers reported serious slowdown in their digital ad business in the last half of 2022, though Magna Global is predicting that VOD/OTT ad business will see 31.6% growth in 2023. How well the new streaming ad players will fare in 2023 if the economy shifts into a recession remains an open question.
