Has the industry finally figured out how to effectively deliver ads to viewers?

The number of consumers using an ad-free streaming platform has increased impressively over the past several years. In the second quarter of 2022, 55% of consumers say they use at least one FAST (free, ad-supported TV streaming services), such as Pluto TV, the free version of Peacock, the Roku Channel, TubiTV, Freevee, etc. That percentage is almost 10 points higher than it was at the end of 2021, according to Hub’s latest report.

The “TV Advertising: Fact vs. Fiction” study also revealed that another 4 in 10 (42%) subscribe to the ad-supported tier of a streaming on-demand subscription service: Hulu, Discovery+, Paramount+, Peacock, or HBO Max. Subscription to those ad-supported tiers is up four points since the end of 2021.

Meanwhile, according to Hub, most TV consumers say they would rather save money each month and watch ads than pay more to avoid ads. In fact, 56% say they would rather watch ads and pay US$4-5 less per month for a streaming service. Preference for less expensive, ad-supported tiers over more expensive, ad-free tiers has remained relatively stable over the past year.

Those who use ad-supported streaming services feel they get just as much value from the service as those who subscribe to ad-free services. Subscribers to the ad-supported tiers of streaming services are, for the most part, equally likely to feel they get “excellent” or “good” value from the service as those who subscribe to the ad free versions.

Furthermore, subscribers to Discovery+ and Paramount+ with ads are actually five points more likely than ad-free subscribers to feel those services offer excellent or good value. What is more, strong majorities of FAST users say those services offer value — across all the FAST platforms Hub tested.

According to Hub, a relatively heavy ad load does not necessarily lead to lower viewer satisfaction. For example, subscribers to Discovery+ and Hulu with ads are the most likely to agree that they see “more ads” on those platforms than on other streaming platforms. However, subscribers to those same platforms are also the most likely to feel the number of ads they see is “reasonable” — despite their perception that the sheer number of ads is higher.

Those two platforms are also at the top of the list when consumers are asked how much attention they paid to the ads during a show they watched recently on the service: 51% of recent Discovery+ viewers gave the top ratings on ad attention (8-10 on a 0-10 scale), as did 45% of recent Hulu viewers.

Hub noted that the key to keeping viewers satisfied even with a relatively higher ad load are relevant ads. The researcher asked recent viewers of an ad-supported platform if they remembered seeing ads that seemed relevant given their interests. For those who did remember ads like that, 69% said they enjoyed the entire experience of watching the show. For those who did not see relevant ads, viewing enjoyment was just 48%. Similarly, show enjoyment was 61% among those who remembered ads for products that seemed to be based on their past purchases. Among those not seeing ads like that, enjoyment was a lower 49%.

All of this is not to suggest that anything goes when it comes to ad load or length of ad breaks. Hub asked ad-supported viewers to estimate how many ads they saw during a recent show. Once the number of ads reaches 6-10 per half hour, the proportion feeling the ad load was unreasonable begins to climb dramatically — from 25% among those recalling five or fewer ads, to 36% for 6-10, to 46% for 11 or more ads. The same phenomenon holds for length of ad breaks: once breaks hit the one-minute mark, perceived unreasonableness of break length climbs steadily: 33% for those saying breaks were one minute long, to 41% among those estimating 90 seconds, to 48% estimating two minutes+ per break.

“Flashback to the late 2000s: take the rapid success of ad-free streaming services like Netflix, add in the gradual erosion of traditional pay TV subscribers, and many industry experts began to predict that ad-supported TV would go the way of the dinosaur,”  said Peter Fondulas, Principal at Hub and co-author of the study.

“It turns out the issue consumers had with ad-supported platforms was not the fact that they included ads at all, but how the ads were delivered. With reasonable ad loads, more relevant targeting, and a quid-pro quo agreement (watch ads, pay less), the industry seems finally to have an answer to the question that has dogged it for years: how to get consumers to accept TV advertising,”  Fondulas concluded.

The data cited here come from Hub’s “TV Advertising: Fact vs. Fiction” study, conducted among 3.004 consumers age 14-74 in the United States, who watch at least one hour of television per week. The figures were collected in May 2022.