Ads to support more online content

12 February 2016

PALM DESERT, CA: Ads could soon play a far larger role in a digital-content space now dominated by commercial-free services like Netflix and Amazon Prime, according to a leading observer from the Annenberg Center for the Digital Future.

Jeffrey Cole – who is Director of the University of Southern California (USC) Annenberg Center for the Digital Future – discussed this subject at the Interactive Advertising Bureau's (IAB) 2016 Annual Leadership Meeting.

In outlining various trends that are likely to influence entertainment-focused media in the near future, he argued that ads might begin to support the provision of over-the-top (OTT) video in a wide variety of environments.

"Consumers understand there are only three ways to acquire content," Cole said. (For more, including six other shifts set to impact the media space, read Warc's exclusive report: Seven remarkable new media trends for 2016.)

The first, he asserted, is simply to "pay fees or subscriptions", as is the case for ad-free properties like Netflix, Amazon Prime and HBO NOW.

An alternative is to "steal it" – and, Cole continued, "even those who steal it acknowledge it's not a very good business model."

The final option is to "accept advertising", which has long supported traditional media – and may quickly adopt a similar role in parts of the digital ecosystem. "What we're seeing is a clear preference for advertising," said Cole.

In understanding why, Cole assessed the average expenditure on programming and communications services – ranging from cable, satellite and OTT packages to broadband and satellite radio.

And he reported that this figure stands at $267 per month for the typical American household. "If you look at people who live at or below the poverty level, that $267 only drops to about $199," Cole further ventured.

With an annual commitment between $2,400 and $3,200 per year, he predicted that most consumers were reaching a financial ceiling in this category.

In reflection of this fact, many cable providers have "been smarter than we all thought" and introduced "skinny bundles" commanding roughly $30 a month, compared with a norm of around $85.

And ad-funded models could rapidly gain ground for the same reason. "There's a limited amount of money people are going to spend for additional packages. And we think most of the new content is going to come from advertiser support," said Cole.

Data sourced from Warc