The rise of streaming services has revolutionized how we consume entertainment. But, as the competition in the streaming market heats up, companies are rethinking their revenue strategies. One of the most notable trends emerging in the past few years is the increasing shift toward ad-supported plans. This move is changing how we engage with content and has significant implications for both consumers and streaming platforms.

The rise of ad-supported plans in streaming platforms

The streaming landscape has changed drastically over the past decade. Originally, platforms like Netflix, Hulu, and Amazon Prime Video operated under a subscription-based model (SVOD), where users paid a fixed amount each month for access to content. 

But, as competition has grown and costs have risen, many platforms are seeking new ways to generate revenue.

In this article, we explore why streaming services are moving toward ad-supported models, the benefits and challenges for both users and companies and what this means for the future of digital entertainment.

The growth of the streaming market

Streaming services have witnessed rapid growth, with platforms like Netflix, Disney+, and Amazon Prime Video seeing millions of new subscribers each year. 

As more and more people move away from traditional cable TV in favor of streaming, the market has become crowded. This rise in streaming platforms means that subscription fees alone are no longer a sustainable model for growth, especially with the economic pressure on consumers. 

As a result, platforms are increasingly turning to ad-supported plans as a way to increase accessibility and generate more income.

The impact of the pandemic on streaming subscriptions

The COVID-19 pandemic significantly accelerated the adoption of streaming services, as lockdowns and social distancing measures forced people to seek entertainment at home. 

While this boom in subscriptions was beneficial for platforms, it also created new challenges. Many services saw a plateau in growth as they saturated their markets, particularly in countries like the U.S. and the U.K., where most potential subscribers already had accounts with one or more platforms. 

The pandemic created a need for affordable options for viewers who may not have wanted to commit to higher-priced subscriptions.

How ad-supported plans work on streaming platforms

Ad-supported plans offer a unique way for streaming services to attract more viewers by making content accessible at lower or even no cost. However, these plans come with limitations, such as interruptions from advertisements.

The freemium model: what are “ad-supported” plans?

An ad-supported streaming plan typically comes with lower monthly fees or is offered for free in exchange for viewers agreeing to watch advertisements during their content. 

Services like Hulu and Peacock have adopted this model, offering viewers access to a range of TV shows and movies, but with interruptions for commercials. For example, Hulu’s “Basic” plan features advertisements, while its “Premium” version is ad-free.

The idea behind this freemium model is to give consumers a choice. Users who don’t mind commercials can enjoy lower subscription costs, while those who prefer an ad-free experience can pay a bit more for uninterrupted viewing.

Premium plans with ads: what makes them different?

Some platforms have also launched premium plans with ads, offering a middle ground between free, ad-supported options and higher-priced ad-free plans. Netflix and Disney+ are now offering cheaper subscription tiers that include ads, alongside their traditional ad-free plans. 

These models allow users to enjoy the service at a lower cost, while still generating significant revenue through targeted advertising. 

For companies, this creates a win-win scenario: they keep the existing customer base happy with lower fees while tapping into the lucrative advertising market.

Why are streaming platforms moving toward ad-supported plans?

Streaming platforms are embracing ad-supported plans for several key reasons. The shift toward ad-based models is driven by the need for increased revenue streams and a desire to keep content affordable for consumers.

The need for sustainable monetization

While subscription-based revenue is crucial, many streaming platforms have found that relying solely on subscriptions is not enough to sustain long-term growth. 

This is especially true for new platforms entering the market, who need to find ways to generate substantial revenue without alienating potential customers. By integrating ads into their platforms, streaming services can supplement their subscription income, making the service more financially viable.

Platforms like Netflix and HBO Max have experimented with this model in response to slowing subscriber growth, allowing them to remain profitable while offering more affordable options for users.

The saturation of the subscription market

The saturation of the streaming market in countries like the U.S. and the U.K. has made it harder for platforms to grow by simply attracting more subscribers. After years of growth, most people who want a streaming service already have one. 

So, to attract new subscribers or retain current ones, platforms need to offer lower-cost plans. Ad-supported options provide a solution, allowing users to access content for free or at a reduced price, while still delivering a significant revenue stream for the platform through ads.

Changing consumer behavior

The modern consumer is becoming more accustomed to ads as part of their digital experience. Free-to-use services like YouTube and Spotify have conditioned users to expect advertisements in exchange for access to content. 

Moreover, consumers increasingly prefer flexible, cost-effective options rather than paying hefty subscription fees. 

As a result, many streaming users are more willing to accept an ad-supported plan if it means lower costs.

Benefits of ad-supported plans for consumers

Ad-supported plans offer several advantages to consumers, particularly in terms of affordability and access to content.

Lower price accessibility

The biggest draw for many consumers is the ability to access high-quality content at a much lower price point. Ad-supported plans make streaming more accessible, especially for individuals and families on tight budgets. 

Instead of paying upwards of $10-15 per month for an ad-free experience, users can access the same content for a fraction of the cost, or even for free.

Free streaming options

Some streaming services, like Peacock and Crackle, offer entirely free access to content, but with frequent commercial interruptions. 

This model is particularly attractive to people who are unwilling or unable to pay for a monthly subscription but still want access to entertainment. 

These free ad-supported services are often a great entry point for those new to streaming or those who want to try before committing to a paid plan.

Challenges and criticisms of ad-supported plans

While ad-supported plans have their benefits, they also come with a set of challenges, both for consumers and the platforms offering them.

The user experience: are ads intrusive?

One of the major criticisms of ad-supported streaming is the disruption to the viewing experience. Consumers who are used to uninterrupted content may find ads to be a nuisance, especially on premium plans where they expect a seamless experience. 

Advertisements can break the flow of a show or movie, and in some cases, viewers may feel that the ads are too frequent or too long.

The complexity of ad integration

Integrating ads into streaming services can be complicated. Platforms must balance the number of ads shown, the quality of the ads, and how they target users.

 Mis-targeted or irrelevant ads can lead to a negative user experience, which may drive customers away from ad-supported plans.

Examples of platforms embracing ad-supported plans

Several major platforms have already rolled out ad-supported plans, and their experiences offer insights into the future of streaming.

Netflix and the ad-supported plan: a new strategy

In late 2022, Netflix introduced a new ad-supported tier, offering users access to its content library at a lower price in exchange for watching ads. 

This decision marked a significant shift for the platform, which had traditionally been ad-free. The company hopes that this move will attract new subscribers who are hesitant to pay for a full-priced subscription.

Disney+ and ad-supported plans: increasing accessibility

Disney+ has also jumped on the ad-supported bandwagon. In 2022, the company introduced a lower-priced subscription option with ads. 

With its vast library of family-friendly content, including beloved Disney movies, Marvel, and Star Wars franchises, this strategy allows Disney+ to appeal to a wider audience while maintaining a profitable business model.

The future of ad-supported plans in streaming

As the streaming market evolves, ad-supported plans are likely to become a dominant feature. More platforms are expected to follow suit, offering flexible pricing models and incorporating ads to generate additional revenue.

The trend toward AVOD (Advertising Video on Demand) is only going to increase, especially as advertising technologies improve and platforms find new ways to monetize their content. 

Companies will likely continue experimenting with different ways to balance ads with content delivery, offering more personalized advertising experiences to users.

Partnerships with major advertisers will play a crucial role in the success of ad-supported streaming. Platforms will need to develop effective ad strategies, ensuring that ads are not only relevant to viewers but also a significant source of revenue for the service.

Streaming services are embracing ad-supported plans as a way to navigate a crowded market and meet the demands of price-sensitive consumers. 

These plans offer a win-win solution, providing consumers with lower-cost or free access to content while helping platforms increase revenue streams. 

As this trend continues, we can expect more services to adopt ad-based models, creating a new era in digital entertainment.