Netflix's Subscription Model Change Is Unlikely to Solve Its Problems

Advertisers have been jumping through hoops to navigate the streaming wars. In the beginning, premium streamers like Netflix brought a new way to watch shows and movies with an ad-free subscription model. After seeing their success, non-premium streaming companies joined the race and introduced ad-supported subscription options, giving us household names such as Hulu. Even though consumption of streaming has outpaced cable, subscriptions are slowing down and streaming services need new ways to generate revenue. Netflix is now changing the streaming world by openly considering an ad-supported, lower-tier option, even after being a staunch critic of this system. This follows a rise in ad-supported subscription services, such as the lower-cost services from Hulu and a forthcoming offering from Disney+. As we see this rise, advertisers know the money is moving from cable to AVOD—but are they getting better data in return? And are we getting into more walled gardens? Ads Playing on Streaming Services While TV Is Off Waste Brands $1 Billion Per Year The line between subscription and cable How are ad-supported subscriptions different from traditional cable? The line continues to blur. While consumers may prefer paying for streaming services for the convenience of accessing their favorite shows at any time, that comes at a cost. Though you’re still paying, consumers are now also the product by consenting to share data with these streaming services and CTV companies. For Netflix, this new system will not solve its need to remain profitable—but all the data provided from CTV will give advertisers a boost in the streaming space. CTV enables a give and take of data and prevents walled gardens, or companies taking in but not releasing consumer data, which is an issue with traditional cable. This gives CTV an advantage for advertisers over cable. Data collection in the streaming age While traditional cable offers a shallow pool of data, streaming services can go more in depth. They can show a host of viewing habits including what consumers are watching and for how long. Subscription models are also much better at splicing and leveraging data, giving a fuller picture of consumer behavior for advertisers. Lastly, the static IP addresses of the devices people watch from make personalized ads much more addressable and is a big piece of the puzzle for traditional advertising. This is why CTV and OTT are so important—data advertisers can make better choices. With additional ad-supported subscription services, there is a unique mix of commercial breaks and in-content ads to stoke the interest of advertisers. Who cares where cookies are going if we have rich, qualitative data that helps make media more addressable? While this change will be a benefit to advertisers, it will likely not work to solve Netflix’s problems: As it continues to be a dominant force in mergers and acquisitions, such as its recent purchase of Next Games, the streamer is projected to lose 2 million more subscribers, prompting chatter on Wall Street. When it does become available, it is unlikely that people will clamor to switch from their premium model to an ad-supported lower-tier service. If the bet Netflix is making is that an ad-supported model will boost subscriptions, it also has to wonder what having two different consumer bases will mean for its brand, and if that's really going to provide value advertisers.