While almost a quarter (24%) of US internet households – or roughly 28 million households – now subscribe to a leading ad-based virtual multichannel video programming distributor (vMVPD) service, future success will hinge on how well streaming providers manage the fragmented media ecosystem by harnessing emerging technologies to create new and different revenue generation opportunities, according to a new white paper from Parks Associates.
The white paper, “Overcoming Complexity: Advertising in a Fragmented Landscape,” released by Parks Associates in partnership with Adeia, describes how vMVPD services are augmenting – and in some cases replacing – traditional pay TV services as the primary source of innovative advertising-based business models that promise to improve customer engagement and profitability.
“Netflix, Disney+, Hulu, Paramount+, and Max all offer ad-based tiers. These are prime examples of new hybrid services. Streaming TV services, from vMVPDs like Sling TV, YouTube TV, Fubo, and Hulu + Live TV, as well as streaming options from traditional pay TV players like Directv, replicate the traditional pay TV experience with bundles of live/linear channels, premium content, live news, advertisements, and sports, for a premium subscription price,” said Sarah Lee, Research Analyst at Parks Associates.
Amid concerns about inflation and recession, consumers at home are increasingly opting for streaming services first when looking for something to watch and are unwilling to retain as many paid subscriptions as they did at the height of the pandemic. As a result, Parks Associates' research finds that ad-based video streaming services are growing quickly.
The industry-wide emphasis on ad-based models is elevating the importance of delivering a high-quality consumer experience. Effective audience engagement strategies through the application of intelligent technologies are emerging as the key to competitive differentiation in the highly fragmented market, Parks noted.
Furthermore, the ability to personalize the service through intuitive search and delivering relevant ads based on insights about the needs and desires of viewers while respecting the privacy and security of personal information will play a critical role in establishing profitable relationships with viewers. Parks Associates research suggests that there is plenty of room for progress across all aspects of ad-based over-the-top service provider operations. For instance, 43% of consumers surveyed felt there were far too many ads shown on their services, and 46% felt the ads shown were often irrelevant. Parks’ white paper describes how advertising can evolve to address these challenges and more for optimal engagement, profitability, and retention.
“We have already seen significant differences in viewer behavior emerge over the course of 2023 as consumers worry about their financial situation,” said Serhad Doken, Chief Technology Officer at Adeia. Viewer engagement, he added, is the key to addressing this phenomenon because it can contribute to establishing points of competitive differentiation while attracting and retaining viewers. To be successful, however, the video entertainment community must develop new skill sets and competencies.
“Effective engagement strategies require data collection, analysis and the utilization of intelligent technologies – such as artificial intelligence and machine learning – to understand audiences and their preferences better. Executed properly, these strategies can open new lines of dialogue with viewers and create higher levels of interactivity and intimacy. It also creates opportunities to establish and develop a sense of digital community,” Doken concluded.