The trend of slapping ads onto formerly ad-free services isn’t slowing down any time soon.
Last week, Amazon announced plans to launch ads within Prime Video early next year – and you can expect other major CTV programmers to also “keep leaning in” to ads, according to Paul Verna, a principal analyst and head of the advertising and media practice at Insider Intelligence, speaking at AdExchanger’s Programmatic IO this week in New York.
It’s not surprising to see streaming publishers embrace advertising. They need to generate more revenue in a highly competitive market and a cruddy macroeconomy.
But perhaps more importantly, ads raise the average revenue per user (ARPU), which helps with long-term profitability.
“ARPU is one of the most important metrics in the CTV space,” said Steven Golus, CEO of Steven Golus Consulting, also speaking at Prog IO. “Nearly every major streaming service is tracking it.”
Subsisting on subs
Still, the rise of AVOD hinges on subscriber growth for ad-supported offerings.
According to Insider Intelligence research Verna shared during the conference, the number of subscribers signing up for ad-supported rather than ad-free subscriptions nearly doubled between 2019 and 2022, from 17% to 32%.
Why? Consumers want to save money, plus platforms are pushing subscribers into ad-supported tiers, using tactics such as price hikes and anti-password sharing.
The growth rate of ad-supported memberships will continue trending upward as programmers add more supply, Verna said.
A fair deal
And more supply leads to more consistent pricing.
Although Netflix and Disney+ demanded very high CPMs when they launched their respective ad-supported tiers late last year, ad prices are normalizing.
Insider Intelligence projects that Netflix CPMs will be $47 by the end of this year, far less than the $60 Netflix was asking for when it launched ads in November. Disney+ is due for a less extreme dip, down from $50 CPMs at launch in December to just under $47 by later this year.
Netflix and Disney lowered their prices to attract more brand advertisers to their ad-supported tiers. By contrast, more established AVOD services have gradually bumped up prices to take on the competition. Peacock, for example, is on track to close out the year at $40 CPMs, up from around $37 at this time last year.
More level pricing is a sign of a market with healthy competition, which should spur business growth.
In other words: Here’s to CTV hitting puberty. 🥂
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