Commentary: Why must users who pay for streaming services sit through ‘unskippable’ ads?

THE ECONOMICS OF STREAMING

At the core of this transition towards ad-supported streaming is an unavoidable economic reality: The escalating costs of content production and distribution. Streaming giants like Netflix and Disney+ are grappling with these rising expenses, pushing them to heavily invest in original content to retain subscribers.

For instance, Netflix plans to spend US$17 billion on content in 2024, up from US$13 billion in 2023, while Disney’s budget is projected to hit US$25 billion this year.

Traditionally, subscription fees have served as the primary revenue source for these streaming services. Many would think that one viable way that companies could continue affording rising production costs is by increasing subscription fees.

This could not be further from the truth. Surveys indicate that 45 per cent of American streaming subscribers have cancelled their subscriptions due to high costs.

As competition intensifies and consumer expectations evolve, the reliance on subscription revenue alone is becoming increasingly untenable. And for price-sensitive consumers, the option to access content at a lower price point through ad-supported streaming presents a compelling value proposition.

In essence, advertisements help subsidise the cost of content, making it more accessible to a broader audience. They are also a logical solution for streaming platforms seeking to diversify their revenue streams.