December 11, 2023

This image from the film, released by Universal Pictures, shows Mark Wahlberg and the character Ted, voiced by Seth MacFarlane in a “Ted” scene. (AP Photo/Universal Pictures)

Credit: Universal Pictures/Tippett Studio

After spending years accumulating streaming subscribers at exorbitant costs, media companies now need to turn some profits. They increasingly rely on advertising as the answer.

Just look at the recent annual Upfronts for proof, an event that media companies love fox corp.., Warner Bros. found that, disney and Comcast’s NBCUniversalMarket to Advertisers.

With stars and talent absent due to the Hollywood writers strike, NBCUniversal kicked off the event with an animated video of Ted, the mouthy teddy bear created by Seth MacFarlane logged in a series of On the company’s Peacock streaming service, dance to the song’s melody, which includes the refrain “We Need Commercials.”

“We’re all dreamers and think ribbons aren’t fashionable,” the animated teddy bear sings to the audience. “Right now, we’re all begging for ads.”

The ad push is not just because of slowing subscriber growth and customers moving in and out of service (often referred to in the media business as churn), but because the ad market is weak and slow to recover.

During Disney’s earnings call earlier this month, CEO Bob Iger has put a new focus on ad-supported streaming. Paramount Global and NBCUniversal claim they have cheaper ad tiers from the start. Warner Bros. Discovery has also added such options for consumers.

“Despite the near-term macro headwinds facing the overall market today, the advertising potential of this combined platform is incredible and this is a positive move for advertisers,” Iger said after announcing that Hulu content would be joining Disney+.

even NetflixFor years against advertising, enter the game. Last week, the 800-pound gorilla held a virtual demo for advertisers in the streaming room for the first time, unveiling information about its ad-support tiers that boosted its stock price.

Still, it’s early days for the game, and it’s unclear whether ads will fill the void of erratic subscriber growth for the streamer.

“We need advertising”

There has been an increase in consumers signing up for ad-supported streaming subscriptions. In the US, they rose nearly 25 percent to 55.2 million in the first quarter of this year, from 44.3 million a year earlier, according to data firm Antenna. Growth in ad-supported tiers was also on the rise last year. Ad-supported program tiers account for 32% of registrations in 2022, up from 18% in 2020.

Netflix sent the streaming world into a vortex when it said it had lost subscribers earlier last year, Influencing stock prices and prompting executives to find other ways to boost revenue. By the end of the year, Netflix rolled out a cheaper ad-supported tier. The same goes for rival Disney+.

Media companies are returning to the original business model that has underpinned their business for so long — generating revenue from content in a variety of ways, rather than relying on one avenue, the subscription business.

Netflix, while noting that it’s still in “early stages,” said this week that it has 5 million monthly active subscribers because of its cheaper, ad-supported option and that 25 percent of new subscribers sign up for the tier in regions where it’s available.

But media companies are grappling with whether ad-tier subscriptions will make up for other losses.

“I don’t think we fully know the answer to that yet,” said Jonathan Miller, a former Hulu board member and current CEO of Integrated Media, which specializes in digital media investments. “But I think we’ll learn that the ones that don’t churn (subscriptions, no ads) are going to be the most valuable. We need to learn the math over time as the playing field stabilizes.”

Disney is also the majority owner of Hulu, with the most ad-supported subscriptions, followed by Peacock, Paramount+, Warner Bros. Discovery (the soon-to-be-merged Max and Discovery+) and Netflix, according to Antenna. Hulu and Peacock are the two streamers with the most subscribers at the ad-supported tier, the data provider said.

fast lane

In this photo illustration, the Paramount Global logo is displayed on a smartphone screen.

Rafael Enrique | SOPA Images | Light Rocket | Getty Images

The free streaming service, which offers a library of on-demand content and curated channel guides, has seen explosive growth in recent years. Shortly before the ratings surge, Fox and Paramount acquired Tubi and Pluto, respectively. Those deals became a badge of honor on company earnings calls.

For these larger media companies, they also became home to their own libraries.pluto display earlier episodes Part of the lucrative “Yellowstone” franchise, which has also seen multiple spinoffs boost Paramount+.

“We’ve really seen a sea change in the last year,” said Adam Lewinson, Tubi’s chief content officer. “With the general challenges around the paid streaming model, and subscription fatigue stacking up. places. On top of that, nearly a third of streamers are now reducing their spend streaming.”

For Fox, which focuses on sports and news on traditional TV channels, Tubi is its answer to streaming. As CEO Lachlan Murdoch noted earlier on the earnings call, Tubi was the focus of Fox’s Upfront presentation last week. Executives cheered Tubi’s recent debut of a flow meter report from measurement firm Nielsen.

Paramount also emphasized Pluto’s growth. Paramount’s chief digital advertising officer, David Lawenda, said Pluto was a key part of the conversation at the company’s pre-event dinners with advertisers.

Warner Bros. Discovery said it plans to create its own FAST channel.Meanwhile, it has pulled content from HBO Max and licensed it to Tubi and Year.

“Syndicate your content through the FAST channel, it’s probably the smartest thing. It can create strategic value beyond cash,” says Rouhana of Chicken Soup for the Soul. “In a world where churn is a fact, it can only be a good thing to be able to show those lost subscribers content again and earn money while doing so.”

check price

Companies are also jacking up streaming prices to make up for losses. Iger said on Disney’s earnings call earlier this month that the combination of price increases and ad revenue constitutes the planned path to profitability.

Executives at media companies including Warner Bros. Discovery, Paramount and Disney have said on previous investor calls that there is still room for growth in ad-free streaming options.

On Disney’s earnings call, Iger said that while the company isn’t planning to raise prices for ad-supported customers, those paying for content without ads are expected to rise later this year.

Disney Executive Chairman Bob Iger attends an exclusive sneak peek at Peter Jackson’s 100 Minutes of The Beatles: Return to El Capitan Theater on November 18, 2021 in Hollywood, CA. (Photo by Charley Gallay/Getty Images for Disney)

Charlie Galley | Getty Images

“At the same time, the pricing changes we’ve implemented have proven successful, and we plan to set higher prices for our ad-free tier later this year to better reflect the value of our content offerings,” he said. explain. “Going forward, we will continue to optimize our pricing model to reward loyalty and reduce churn, increase subscriber revenue for premium ad-free tiers, and drive growth for subscribers who offer low-cost ad-supported options.”

Last year, HBO Max, Disney and Paramount all raised prices on their streaming services, while consumers have been dealing with inflation on food and other essentials.

“Given the nature of the macro economy, it’s not clear to me that I can continue to raise prices on the subscription side,” said Integrated Media’s Miller. “To me, the right mix will optimize the business.”

Disclosure: CNBC is owned by NBCUniversal, which is owned by Comcast.