How Netflix and Disney+ can fix ad-supported streaming

Netflix has entered the ad-supported streaming market, with Disney+ set to follow next month—the two biggest fish in the pond jumping into ad-stream. As the streaming industry’s heavyweights, the services will be warmly welcomed by advertisers eager to tap their content. Now the companies must use that clout to revolutionize streamed ads—because it’s not currently working.

In order to gauge the effect of Netflix entering ad-supported streaming, The Harris Poll conducted a survey testing Americans’ attitudes on the issue. Their clear message: Streaming-service ads are boring, repetitive and unpersuasive.

Netflix and Disney+ are well-positioned to help fix that. They aren’t the first streaming services to deploy ads, but they will change the market. “It’s going to be the most new inventory for TV content ever introduced at one time,” Ashwin Navin, CEO of Samba TV, a television and streaming viewing measurement firm, told Variety in October. “These companies collectively represent a massive amount of premium video that until now has been off the market [for advertisers]. It’s a watershed moment.”

It came on Nov. 3, when Netflix debuted “Basic With Ads,” a $6.99-per-month plan that gives access to the bulk of the streaming giant’s library (it doesn’t have the right to stream a small portion of its content with ads) with four to five minutes of advertising per hour. On Dec. 8, Disney+ Basic goes live, letting you get your MCU fix for an ad-supported $7.99 per month (the ad-free version, which currently costs that amount, will become Disney+ Premium and cost $10.99 per month).

Netflix is making the move after bleeding subscribers for a good chunk of the year, though it rebounded and added 2.4 million subscribers in the most recent quarter. Lowering its price should help: 63% of Americans named cost a factor they consider when deciding whether to subscribe for a streaming service, making it their most important overall consideration. (Amount of content was a distant second, with 51%.)

And Americans will tolerate ads: Only 28% pointed to access to an ad-free experience as a key factor in subscribing to a streaming service.

Still, that doesn’t mean they like the commercials they’ve been getting. Nearly three-quarters (73%) said that there are already too many ads on streaming platforms. A similar number (70%) said that they’re not interested in the products they see advertised. And an even larger number (81%) said that they see the same ads over and over, adding the insult of repetition to the injury of boredom.

Perhaps most damning of all, 55% of Americans say that streamed ads are less interesting than those aired on more traditional TV services such as cable and broadcast. That figure is even higher among Gen Z/younger millennials (ages 18-29) at 56% and older millennials (ages 30-41) at 64%, who, along with Gen X, are most likely to use streaming services. This, when 65% of Gen Z in a new Harris study say algorithms have increased the content they like to consume and be entertained (vs. 25% of Boomers). And their preferred platform, TikTok, is now an entertainment engine for everything from music and fashion to cooking and even sports. (In 2020, Netflix added TikTok to its list of serious competitors to watch).  

There is a natural evolution when a new medium develops: First we try what’s worked elsewhere and then develop innovative strategies native to the new context. So, the first streamed ads have largely been ports of the ads that have dominated television for decades. Now it’s time to innovate. “Streamers should create new ways for advertisers to talk to their consumers. They need to create engaging ad opportunities, as opposed to just simple intrusive 15 and 30-second ads,” GroupM’s Adam Gerber told the Wall Street Journal in October. “Streamers need to rethink the ad model.”

What might that look like? A slim majority (51%) of Americans said that they would interact with an ad—by scanning a QR code, for example, or taking a survey—if it meant they could then enjoy their show without interruption. Nearly as many Americans disagreed (49%) but there’s a critical age gap: Larger majorities of Gen Z/younger millennials (60%), older millennials (64%) and Gen Xers (54%)—both the demographics most likely to stream and also prized by advertisers—liked the idea, while baby boomers opposed it 66% to 34%. 

We saw a similar generational disagreement regarding ads tailored to the content they’re watching (featuring similar products or themes): Between 63 and 70% of the three youngest generations liked the idea while a majority of boomers didn’t (overall, 60% of Americans endorsed it). Gen Zers/younger millennials (66%) and older millennials (64%) are also open to seeing ads with the stars of the shows they’re watching (think Baby Yoda sipping a Coke)—compared to 48% of all Americans—while Gen Xers don’t love the idea (48% like it and 52% oppose) and boomers hate it (73% are against).

One idea with cross-generational appeal: 77% of Americans said that they prefer to watch ads before a show rather than have them interrupt it—call this the movie theater model. 

One thing is certain: Ad-supported streaming tiers are becoming part of our entertainment landscape. Now, streaming’s giants have to revolutionize the practice and make it new and palatable. This is the way.