As the video streaming industry continues to evolve, one major question keeps surfacing: What’s the best way to monetize video content? Traditionally, many companies have leaned toward subscription-based models (SVOD), but a growing trend suggests that advertising is becoming the dominant force in driving revenue for video businesses. This shift is reshaping the landscape for both content creators and platforms, as advertisers recognize the value of reaching targeted audiences through video.
In this blog, we’ll explore why advertising is becoming the primary revenue driver for the video industry and why the pay model is losing ground to ad-supported strategies.
The Shift from Subscription to Advertising
Over the past decade, video streaming giants like Netflix, Amazon Prime, and Disney+ popularized the subscription-based model, with consumers paying a monthly fee for ad-free content. However, the landscape is changing, with platforms like YouTube, Hulu, and the new Netflix ad-supported tier proving that advertising-supported video on demand (AVOD) is not only viable but lucrative.
Why the shift?
- Subscription Fatigue: With the proliferation of streaming services, consumers are increasingly reluctant to subscribe to multiple platforms. Paying for multiple services can be expensive, leading to subscription fatigue. As a result, consumers are more inclined to opt for ad-supported models that offer free or lower-cost access to content.
- Audience Reach: Advertising models allow companies to reach a broader audience. Users who can’t afford or don’t want to commit to subscriptions are more likely to engage with content if it’s free, but ad-supported. Platforms like YouTube, which generates billions in ad revenue, are evidence that free access with ads is highly appealing to viewers.
- Rising Content Costs: Producing high-quality video content is costly. Subscription fees alone may not be enough to cover these expenses, especially as competition heats up. Advertising provides an additional and often more scalable revenue stream for video businesses looking to fund their content.
Why Advertising is Likely to Drive Revenue
1. Targeted Ads with Data Insights
One of the biggest advantages of advertising as a revenue driver in the video industry is the ability to deliver targeted ads. Streaming platforms and video services gather significant amounts of user data, including viewing habits, demographics, and preferences. This data allows advertisers to serve highly personalized ads to specific audience segments, increasing the effectiveness of their campaigns.
Advertisers are willing to pay a premium for access to targeted audiences because the return on investment (ROI) is much higher than traditional, broad-based advertising. This makes video platforms that offer targeted ads attractive to marketers, increasing revenue potential for video businesses.
2. Ad-Supported Tiers Increase Accessibility
Platforms like Hulu, Peacock, and more recently, Netflix, have introduced ad-supported tiers that offer lower subscription fees or free access in exchange for viewing ads. These tiers open the platform to a wider range of viewers, especially those who are price-sensitive.
This hybrid model allows platforms to generate revenue from both subscription fees and advertising, creating a diversified income stream. For businesses, this means they can attract more users and still monetize those who would otherwise avoid paying for content.
3. Programmatic Advertising and Dynamic Ad Insertion (DAI)
The rise of programmatic advertising and dynamic ad insertion (DAI) technology has revolutionized how ads are delivered on video platforms. With programmatic advertising, ads are automatically placed based on real-time bidding, making the process more efficient and scalable. DAI allows video platforms to seamlessly insert ads into live or on-demand video content without interrupting the user experience.
These innovations enable video businesses to sell more ad inventory, target users more effectively, and generate higher ad revenues with minimal manual intervention.
4. Brands Moving Budgets to Digital Video
As consumers continue to shift away from traditional TV to online video platforms, brands are following suit by moving their ad spend to digital video. According to industry reports, digital video ad spending is expected to surpass traditional TV ad spending in the coming years. Brands see the value in reaching online audiences, particularly on platforms where they can precisely measure campaign performance and adjust in real-time.
For video businesses, this trend presents a significant revenue opportunity. By providing ad-supported content, they can tap into this growing market and attract lucrative brand partnerships.
Pay Models Have Limits
While subscription-based models like SVOD have enjoyed success, they are not without their limitations.
1. Market Saturation
There are now so many streaming platforms that consumers are forced to choose which ones to subscribe to. As a result, market saturation has become a major challenge for SVOD services. While giants like Netflix and Disney+ continue to grow, smaller platforms struggle to compete for subscribers in an already crowded space.
Ad-supported models offer an alternative that allows platforms to grow without directly competing for monthly subscriptions.
2. Content Exclusivity is Costly
Many SVOD platforms rely on exclusive content to attract and retain subscribers. However, producing or acquiring this content is costly. To maintain profitability, platforms must consistently raise subscription fees or limit content. Advertising offers a way to alleviate some of this financial pressure by providing an additional revenue source to fund content production.
Conclusion: Advertising is the Future of Video Monetization
While the subscription model will continue to have a place in the video business ecosystem, it’s clear that advertising is becoming the dominant force driving revenue. With benefits like targeted ads, programmatic technology, and the ability to reach a wider audience, ad-supported models are more sustainable and scalable for video platforms.
For businesses in the video industry, focusing on AVOD strategies, leveraging data-driven ad placements, and adopting hybrid models can unlock new revenue opportunities and ensure long-term growth. Advertising isn’t just a supplement to subscription fees—it’s the key to driving the future of video monetization.
