The case for ad-supported video streaming

April 25, 2022

Jonathan Bennett, Chief Commercial Officer

Jonathan Bennett

Chief Commercial Officer

When Disney+ announced the launch of an ad-supported tier in the US in early March, few were surprised. To cost lesser than the ads-free tier currently priced at US$8, this tier may help Disney grow the subscriber base from the current 200 million to 230 million by 2024. Disney will also be able to offer more ad inventory to advertisers beyond Hulu and ESPN+.[i]

According to a recent interview with Axios, a Disney executive mentioned that more than 40% of Disney’s ad inventory comes from Hulu and ESPN+. Similarly, Peacock, Paramount+, HBO Max and Discovery+ all offer ad-supported video tiers. And Netflix has announced that it may be looking to offer an ad-supported tier to fend-off slowing subscriber growth.

The rise of AVOD amidst slowing streaming growth

Amazon too is doubling down on the ad-supported category. IMDb launched the free, ad-supported video on demand (AVOD) service in January 2019 under the name IMDb Freedive before rebranding to IMDb TV in June of that year. After beginning in the U.S. and expanding to the U.K. in September 2021, Amazon Freevee will become available in Germany later this year.

In a press release detailing its vision for Freevee’s future[iii], director Ashraf Alkarmi framed the service as a supplemental platform to appeal to consumers interested in watching “premium” series and films with significantly fewer commercial interruptions. “Customers are increasingly shifting to streaming ad-supported premium content, and we have developed Freevee to deliver them highly sought content with half the commercials of traditional TV,” Alkarmi said. “Our new name clearly communicates who we are: An easy-to-navigate streaming service, available to users for free, whenever and wherever they choose to watch some of the greatest Original and licensed content available.”

Warner Bros.Discovery just revealed that CNN+, which started only a few weeks ago, will discontinue operations on 30 April, citing strategic incompatibility. Having garnered 150,000 subscribers since launch, CNN+ was a big bet for the network with US$300 million in investments. However, the group’s new management was less convinced of the business case for a new streaming service focused on news and current affairs, according to Axios.[iv]

Regional dynamics add complexity

According to the TV research firm Magid, consumers in the US have not increased their subscription budget from US$40 since 2019 despite the number of streaming video services having quadrupled during this period. Despite the low price tag, the ad-supported tier can drive a higher average revenue per user (ARPU) for the service providers. Global revenues from the ad-supported video market have grown at a healthy clip. And it becomes even more critical in the context of more price-sensitive markets in Asia and Latin America.

Most video streaming services are compelled to offer lower-priced tiers to gain market share. In 2018, Netflix introduced a US$4 mobile-only plan in Malaysia – almost half the cost of its “Basic” tier (US$7.90).[v] India has proven to be an important testing ground for Netflix. In 2019, the streaming giant rolled out a US$2.70 plan that gave users mobile-only access to its catalog in standard definition. There are even rumblings of a US$4/month plan and a “sachet package” valued at US$0.90 per week.[vi]

Sachet pricing has caught on in emerging economies like India, where inexpensive data plans are fueling content consumption, especially in rural areas. SonyLIV, a leading India-based OTT platform, introduced sachet packages for live sports broadcasts priced at US$0.50 a week. In a stroke of genius, the platform timed its rollout to coincide with the Indian Premier League cricket tournament to capitalize on the country’s national mania for cricket.[vii] SonyLIV’s model is like the one used by UK-based DAZN, a sports-focused OTT platform that varies subscription fees based on a user’s country or territory – in some economies, it costs less than US$1 for a month’s subscription.[viii]

Global players also must deal with regional competitors in specific markets. Dominant regional platforms include Hong Kong-based Viu, China’s iQIYI, and Vidio in Indonesia. India alone is home to around 40 home-grown OTT platforms such as aha, hoichoi, and OHO.[ix] These services set themselves apart from their international counterparts by offering content with regional language subtitles and original content in local languages. In August 2021, Viu was reported to have overtaken Netflix in terms of raw numbers subscriptions in Southeast Asia.[x] They offer pricing that is typically lower than the global offerings.


We will see streaming video players doubling down on ad-supported tiers to bolster user growth and revenues. They would also leverage the ad-supported tiers as a showcase for their content libraries, hoping to convert users to premium tiers eventually. Different subscription bundling partnerships with mobile carriers will allow streaming services to tap into consumer segments across a spectrum of price sensitivity.












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