Streaming giants such as Netflix and Disney+ struggled with viewership in the first half of 2022, with the former revealing its first subscriber decline since 2021 and the latter revealing significant operating loss. Their solution to overcome these losses was to introduce ad-supported streaming tiers. Merkle raised this change in a blog last September. Today, we focus on the shift in consumer sentiment and provide results of the changes in service.
As we move into a period marked by persistent inflation and economic woes, viewers are starting to rethink their discretionary purchases and are finding ways to cut back to fund more pressing concerns like food, housing, and transport. According to GWI, cost is the key factor that is driving people to cancel their subscription services – whether the price is too high (25%), they are paying for too many services (28%), or they are not using it enough to get the best value out of it (26%).
The option to choose between a platform with tiered services as opposed to having none has resonated with viewers. TGI has recently revealed that, of the 27 million adults who claim to pay for a TV subscription service, 32% are willing to see adverts on streaming services if it means that their subscription is free, and 13% would be willing to accept ads if it means their subscription is cheaper. Globally, 64% of paid video streaming users would put up with adverts for a cheaper streaming subscription.
The introduction of ad-supported tiers has made video streaming services more accessible – subscribers can switch to the cheaper tier rather than giving up video streaming altogether and non-subscribers are offered a lower fee.
Despite multiple surveys revealing positive interest for consumers to either switch their current subscription tier to the new ad-supported option or non-subscribers anticipating signing up for the ad-supported tier, the results do not reflect reality. Netflix has reported it has fallen short of its predicted success so far. Its failure to meet the ad-supported viewership guarantees made to advertisers means advertisers can take their money back for ads that have yet to run. Disney+ on the other hand, has launched its ad-supported tier alongside a 38% price hike in its premium tier. Its ad-supported tier now costs the same price as its premium tier previously was. In other words, Disney+ subscriptions have increased in cost without offering any price saving for viewers.
The ability to cut down on costs matters in the eyes of the viewers. The Netflix basic plan and basic with adverts plan only differs by £2, translating to an annual £24 in savings. The possibility of a £24 annual saving vs having an ad break while watching a Netflix latest hit series may not offer a considerable value exchange.
In a time where consumer attitudes are perpetually changing, brands must put their audience’s preferences first. It will be interesting to see if streaming platform users will eventually start making the decision to cut out subscription services or switch tiers if economic woes worsen and/or when Netflix starts hiking the premium tier prices.