Coming soon to a streaming service near you: Announcements

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Reed Hastings was consistent year after year. Whenever someone asked Netflix’s CEO when he would be introducing ads on his streaming service, he insisted it didn’t make sense. Netflix was a better service because there were no ads, he said.

This was when Netflix was growing. Now it’s shrinks – and now Netflix says there will be ads: Last month, after announcing that his company had lost subscribers for the first time in a decade, Hastings told investors he wanted to introduce a cheaper version of the service that would have ads “in a year or two“, although he was unclear on the specifics. “I’m sure we’ll just go in and figure it out.”

There are plenty of things to do. This week, Netflix moved the schedule forward, notifying employees of a ad level could be rolled out before the end of 2022.

All of this underscores a significant shift in the way streaming video companies view their business – and how some people will watch TV and movies. Television advertising, which seemed destined to be a relic, is suddenly very much alive again, even with services that once staked their identity on the absence of advertising. Last year, for example, HBOMax started selling a cheaper tier with ads; Disney+ is adding one of its own this year.

It’s a turning point for an industry that seemed to be moving away from ads as fast as it could, in part because it was following Netflix’s anti-ads lead. But if you take a step back, there are two easily understandable reasons why streamers are embracing ads, willingly or reluctantly:

  1. Even in 2022, there’s an awful lot of money in TV advertising, and it’s still growing: Media agency Zenith predicts advertisers will spend $65 billion on TV ads this year, up 4% from last year. Even in 2022, people still watch a lot of TV programs. But they’re watching it more and more on streaming services on their TVs — streaming services now account for 30% of time spent on TV, by Nielsen. Advertisers therefore want to fish where the fish are.
  2. Streaming wars are expensive to fight. Every new service Netflix is ​​chasing is pouring billions into programming to attract and retain subscribers. Previously, networks and studios had multiple ways to make money from programming — commercials, cable TV subscription fees, and syndication — but the new model removed all of those in favor of a license fee. single for consumers. Adding ads is a way to make more money and/or increase profits, which are increasingly important to investors.

What’s a little harder to figure out is why the ad experience on streaming TV — for people who pay for ads and those who have to watch them — is still lousy.

Conventional TV advertisers know exactly when and where their ads are airing, and at least have some sense that they’re reaching a lot of people with a single purchase. But while streaming platforms offer the promise of more data and better targeting, advertisers have to deal with a bewildering array of different programmers, ad serving companies and platforms.

Streaming viewers, meanwhile, will encounter non-skipping commercials that frequently repeat multiple times per show, and often seem randomly stitched together from TV shows or movies without any rhyme or reason. They are often much too loud – so much so that US lawmakers have proposed regulating them. All of this in a medium that is supposed to be more personalized and smarter than the television of yesteryear. Instead, many seem as dumb and scattered as spam in your inbox.

“We took everything the internet taught us about how to make ads shittier and brought it to TV,” says Joe Marchese, a former internet and TV advertising executive (he sold his company TrueX to Fox in 2014) who now leads Human enterprisesa start-up investment company.

“There is a huge gap between the evolution of digital advertising technology and what will be needed to succeed in a television environment,” says Dave Morgan, a longtime digital advertising executive whose current company, Simulmedia, works with conventional and streaming TV advertisers.

Which makes it somewhat confusing that Netflix, which has long made ad-free streaming a core part of its brand, is now rushing into ads, seemingly without much planning and no apparent infrastructure. Ditto comments on Hastings’ earnings call suggesting he’d like to outsource a lot of the work to “other people.” [who would] do all the fancy ad matching and integrate all the people data, so we can stay out of it. That’s because most people in the TV advertising industry that I talk to argue that the worst parts of the streaming ad experience come from the maze of middlemen that sits between advertisers and streamers, which which often makes it difficult to know where, when and how ads end up on your screens.

None of this matches the history of Netflix trying to control every part of its service – from creating its own distribution system in the days of DVD-by-mail to building a sophisticated system to stream video. So either Hastings has a plan he’s quietly hatching, away from the ad industry, or he’s quickly putting something in place to shore up Netflix’s revenue and share price. Either scenario would be surprising.

Before we go any further: if you’ve gotten used to ad-free streaming on places like Netflix, Disney+ and HBO, you don’t necessarily have to worry, as long as you’re willing to pay. All of these companies have or are working on a tiered service, where the more expensive versions will be ad-free and the cheaper ones will have ads.

But many of the newer — and fastest growing — services are explicitly designed to serve ads, like Comcast/NBCU’s Peacock, Paramount’s Pluto, and 21st Century Fox’s Tubi. Tech-based TV companies are also increasingly interested in ad-supported streaming: Amazon has something called Freevee, which was previously called IMDb TV; Roku has its own free Roku Channel, currently filled with leftover bargains (and those Quibi shows you’ve never watched) but may one day feature Starz Pay TV programming.

None of this is necessarily bad. Programmers rightly argue that ad-supported streaming can give consumers more choice about what they want to watch and how much, if anything, they want to pay for it.

And some advertisers say they’re pretty happy with the benefits that digital TV ads can deliver. Sam Bloom, CEO of Camelot Strategic Marketing & Media, said he spends about $200 million on streaming TV ads for his clients and is happy that technology allows him to eliminate some waste.

Roku, for example, uses “Automated content recognitiontechnology on its smart TVs that allows it to track what people are watching, whether it’s from a streaming service or cable or even live TV. This may sound scary to you, but for Bloom it’s a plus: it allows him to not show ads to viewers who have already seen his customers’ ads, or allows him to target customers who have seen the ads of rivals of its customers.

Still, even the most optimistic digital TV booster will concede that streaming TV ads have a lot going for them. “It’s in an awkward teenage phase,” an executive at a major streaming technology company tells me. But with the money coming in, it’s unclear how that will turn out anytime soon. “Yeah, you’ll see a bunch of tweets about how ‘I watched something and saw the ad three times and hated that experience,'” says an executive who runs a major ad-supported streaming service. “But that person still looked at it.”

Thank you very much for your comments on my recent entries; I don’t respond to all of your notes, but I read them and will occasionally include them here. And let me know what you think of this week’s column – or anything else. You can @me on twitter or email me: kafkaonmedia@recode.net.



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