Ad-supported streaming vs subscription model. What is the future of OTT?

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While the world of OTT streaming is still young, the Covid-19 pandemic has cemented its place as the future of the entertainment world – and thus, as a staple commodity in the lives of entertainment-hungry masses. And just like regular consumer goods, the discussion around the price of OTT viewership and subscription is gaining more importance among consumers with each passing day.

According to Deloitte’s Digital Media Trends survey in 2020, it was found that consumers considered price to be a key factor in their purchase decisions, and over half of the 2,000 respondents felt that the subscription costs of OTT platforms are too high.

In the present day, the reality is that the price of OTT streaming is still notably higher on average than cable TV, the industry that the OTT sector seeks to supplant. Considering that the OTT sector is still developing and has prioritised the creation of new and original content, revenue targets are the name of the game, and these platforms cannot afford the loss in income that a reduction in subscription costs would accompany. However, there exists one viable alternative – one that Netflix and other streaming giants have stubbornly avoided.

Deloitte’s study has found that 65% of the respondents were willing to view advertisements in exchange for cheaper subscription plans. Similarly, a study conducted by Hub Entertainment Research found that 58% of over 3,000 respondents would prefer ad-supported streaming if it meant paying less. Evidently, the numbers tell us that the introduction of advertisement support in the world of streaming is not something consumers would be averse to; and indeed, it offers a monetary win-win for service providers and viewers both, by reducing prices and maintaining (or even augmenting) revenues.

YouTube serves as a noteworthy example of the ad-supported model. Any consumer can access any content on YouTube for free, but at the expense of viewing a considerable number of ads. Alternatively, consumers can pay for the YT Premium service, and enjoy an ad-free experience. Either way, YouTube gains its revenue, but viewers have control over their expenditure. While YouTube differs from OTT streaming, the premise behind the ad-supported approach remains similar.

However, streaming services remain reluctant to implement the ad-supported model. A major component of the appeal behind OTT streaming when it first started was the ad-free experience that differentiated it from cable TV, and bringing in the element of ads in streaming serves as a travesty of this philosophy. Netflix remains the largest advocate against ad-supported streaming, and their CEO Reed Hastings has stated on multiple occasions that their business model is meant to be “simple, and focused on streaming and customer pleasure”. He also has highlighted the detriments of targeted advertising that plague other giants such as Facebook and Google (user privacy and tracking), and to be fair, these concerns also remain valid in the present day.

Thus, we can see that while the balance may sway between high costs and introducing ads, the OTT segment has to take a highly nuanced decision on this matter. As to which approach is better, we can only wait and watch.