Ad-Free Subscription Streaming Growth Outpaces Ad-Supported Fare During COVID-19

A billboard for the new streaming service HBO Max in New York City. Justin Lane/EPA-EFE/Shutterstock

Overall time spent streaming has more than doubled since March, when the U.S. and other countries largely shut down due to COVID-19. But growth has been slower for ad-supported players than for ad-free subscription ones, a pattern Barclays analyst Kannan Venkateshwar said Friday proves consumers are getting more sophisticated as they adjust to streaming.

The analyst cited recent data from Nielsen as well as ReelGood, an online search tool for streaming programming. Fully ad-free subscription services like Netflix and Amazon Prime Video thrived March 25 to May 13, as has the ad-supported, non-premium content on YouTube. Services in between — namely Hulu’s popular basic tier, with a $6 monthly subscription fee but a light ad load — have grown at a slower pace.

Venkateshwar said Hulu viewing grew 107% during the pandemic period, while Netflix rose 116% and Amazon climbed 124%. The big winner, though, was YouTube, which increased 134% and also upped its share of the streaming market to 20% from 18% in the same span in 2019.

In his weekly review of media and tech news for clients, Venkateshwar argued that the data is a warning sign for AVOD services flooding the market. NBCUniversal’s Peacock, which launched on Comcast platforms in April ahead of a national rollout in July, is positioned as a major AVOD entrant. HBO Max, which launched on Wednesday, is ad-free for now but will add an AVOD tier in 2021. CBS All Access, like Hulu, has a limited-ad version as well as an ad-free one. (The burgeoning crop of free, ad-supported services like Tubi, Pluto and Crackle, did not factor heavily into the report.)

The gospel according to AVOD purveyors is that cord-cutting in pay-TV, general economic conditions and consumer reluctance to pay for multiple SVOD services means AVOD is the optimal strategy. Venkateshwar is not as convinced.

“As consumers become more comfortable with a la carte streaming subscriptions, expectations associated with such subscriptions are likely to be very different from legacy media services across different forms, audio, video and print,” the analyst wrote. “While it is a bit premature to extrapolate present trends into perpetuity given that ad supported models are still relatively new, we do believe newer services will need to think more carefully about their brand identities and consumer experience when choosing a monetization model. Just creating a hybrid model to provide a lower price point is unlikely to drive greater subscriber scale in itself. In addition, not every ad supported digital service is likely to be equally well positioned to monetize digitally distributed media.”

Expectations are one issue for services choosing to charge a fee but also serve ads.

“When consumers pay a la carte for a streaming service like Hulu, it comes with consumer expectations for a certain experience, irrespective of the price point,” Venkateshwar wrote. “This experience is defined by the market leader, which happens to be Netflix for video streaming. Therefore, subscribers are likely to inevitably compare the Hulu experience with Netflix, irrespective of the price differential, and this makes Netflix ironically even more attractive despite its higher price.”

Hulu, a longtime joint venture of multiple media companies, is now run by Disney. It reported 32.1 million subscribers as of March 31, up from 25.2 million at the same time a year ago.

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