What Rising Streaming Costs Mean for Your Ads

Thanks to rising streaming costs, the Over-The-Top (OTT) streaming services industry continues to shift. Subscription prices have become a thorn for consumers, reshaping their behavior and the industry at large. The rise in subscription costs is prompting a growing number of viewers to explore ad-supported tiers as a more affordable alternative to premium, ad-free plans. These changes are not only affecting individual viewing habits but are also influencing how advertisers look at OTT platforms. This blog explores the implications of inflating streaming costs, covering how they are driving the popularity of ad-supported models, and what this means for advertisers.

What Services Are Affected by Rising Streaming Costs?

It came as quite the shock when Netflix announced it would offer an ad-supported tier back in 2022. The company had been in the streaming game for nearly 15 years offering one flat monthly rate. Disney+ followed Netflix's lead soon after and it quickly became apparent that streaming services were struggling with their balance sheets. Since then, Amazon Prime, MGM+, Peacock, Hulu, and many more major streaming services have followed suit with ad-supported tiers.

Why are Streaming Services Losing Money?

It seems crazy to say that streaming services are losing money when 99% of American households (and many more households worldwide) subscribe to them. So what is going on? Why are these platforms switching pricing strategies and why are streaming costs rising?

Over the last 15 years, streaming platforms have been playing a game of acquisition. And now, according to Antenna CEO Jonathan Carson, "they must shift their focus to managing their subscribers.” This transition from gaining new subscribers to keeping the ones they have is proving difficult. Recent trends like Netflix cracking down on password sharing have been extremely unpopular with consumers, leading to stagnating subscriber growth and massive social media backlash.

But these unpopular decisions are not the only reason streaming services are hurting. The streaming market is growing increasingly more saturated. It seems there is a new niche streaming service launching every week. All of this competition, specialization, and niche programming is spreading the viewer base thin.

The biggest expense, and what is likely the reason streaming services are shaking things up, is the cost of original programming. Disney spent nearly $1 billion on just four movies that saw a theatrical and streaming release in 2023, all four of them flopped. These costly original shows and movies are the main draw for new subscribers. And people aren't going to sign up and pay money to watch bad programming.

With the sheer wealth of choice for streaming services and niche interests, big streaming platforms are focused on quantity over quality. Netflix, for example, is now over 1/3 original programming, that's 3700 series and movies. Netflix plans to spend nearly all of its $17 billion content budget on original programming this year. And not all of it is spent on big hits like Stranger Things and Outer Banks, Netflix has its own Reality TV, Documentaries, Animated Shows, Anime, Kids' Shows, Variety Shows, and more. All of that is to compete with smaller streaming services that focus solely on those niches. Is it too much? Is it sustainable? Only time will tell.

What Does This Mean For Your Ads on OTT?

While rising streaming costs and the rise in ads might frustrate consumers, as an advertiser, you should be excited. This vast audience that used to be entirely ad-free is now at your fingertips. The rise in prices has pushed many subscribers to the lower-cost, ad-supported tiers of many streaming services. Right now, 40% of all new Netflix signups are for the ad-supported tier–that's 40 million active users. What’s really exciting for advertisers is just how fast Netflix with ads grew to 40 million subscribers, by gaining 35 million in 1 year! 

The ratios are even higher for services like Hulu, which had the majority of its subscribers on the ad-supported tier. With 62% of sign-ups in Q1 2024 going to the ad-supported plan. Peacock takes the crown however, with 69% of all new sign-ups choosing the ad-supported tier in 2023, the highest percentage of all major streaming services according to EMARKETER.

How El Toro Can Maximize Your Reach on Streaming Platforms

It is safe to say that streaming with ads is becoming the new norm with rising streaming costs. So what are the benefits of OTT advertising?

Firstly, OTT provides a captive audience as people watch their favorite shows, meaning more eyes on your ads. OTT also provides some refinements over traditional video advertisements. Because OTT streams over the internet, advertisers can deliver personalized content to households and devices. Utilizing technologies like El Toro’s patented IP Targeting can deliver targeted ads to users of individual households. OTT also allows advertisers to track clickthrough rates, video completion rates, and more, all things not possible in the world of TV ads.

El Toro supports many OTT platforms including traditional streaming and Free Ad-supported Streaming TV (FAST) services like Sling and Samsung TV+ among others. El Toro supports many traditional streaming platforms like Hulu, MAX, Peacock, and more. El Toro also gives you the benefit of targeting your consumer base wherever they are streaming, so you don't have to focus on deciding what streaming services you should serve on. For more info on these streaming services as well as the FAST services El Toro supports read our blog here.

Thanks to rising streaming costs, more viewers are opting for ad-supported tiers, and advertisers now have a golden opportunity to reach an expanding audience that was previously inaccessible. This shift highlights the importance of targeted and efficient advertising strategies. IP Targeting can provide advertisers with the tools to effectively engage viewers on both traditional streaming platforms and emerging FAST services. As the industry navigates these changes, advertisers who adapt to the new norms of OTT will be well-positioned to maximize their reach and impact. If you're ready to run with the bull, contact us.