You are sitting in front of your television, scrolling through the movie options on the streaming platform that you pay for every month, when all of a sudden an advertisement pops up. You realised you have no way of navigating out of the ad except to sit through it. Frustrating?

Recently, StarHub TV+ users took to social media to complain about how they were forced to sit through “unskippable” ads when browsing within the platform that they paid for.

In a similar situation, US customers of Amazon Prime Video will see adverts on the streaming platform unless they pay an additional US$2.99 every month to go ad-free. According to reports, Amazon Prime customers had vowed to cancel their subscriptions after the video streaming provider announced its major pricing change in January this year.

The streaming landscape is moving towards an era when consumers must choose between convenience and affordability. Gone are the days when streaming was cheap and viewers could binge-watch with no interruptions.

Even though StarHub eventually reduced the frequency of ads by more than half after the uproar, these questions remain: Why are we going back to advertisements after ditching traditional cable channels to enjoy commercial-free streaming services? Should non-skippable ads have a place in subscription-based television?

The economics of streaming

At the core of this transition towards ad-supported streaming is an unavoidable economic reality: The escalating costs of content production and distribution. Streaming giants like Netflix and Disney+ are grappling with these rising expenses, pushing them to heavily invest in original content to retain subscribers.

For instance, Netflix plans to spend US$17 billion on content in 2024, up from US$13 billion in 2023, while Disney’s budget is projected to hit US$25 billion this year.

Traditionally, subscription fees have served as the primary revenue source for these streaming services. Many would think that one viable way that companies could continue affording rising production costs is by increasing subscription fees.

This could not be further from the truth. Surveys indicate that 45 per cent of American streaming subscribers have cancelled their subscriptions due to high costs.

As competition intensifies and consumer expectations evolve, the reliance on subscription revenue alone is becoming increasingly untenable. And for price-sensitive consumers, the option to access content at a lower price point through ad-supported streaming presents a compelling value proposition.

In essence, advertisements help subsidise the cost of content, making it more accessible to a broader audience. They are also a logical solution for streaming platforms seeking to diversify their revenue streams.

What if ads help consumers save money?

Many would assume that while ads might keep subscription costs down, the compromise in viewing experience could push subscribers to other platforms over time.

Evidently, the introduction of ads into streaming services have been met with negative reactions. When YouTube first introduced ads, there was significant pushback from users, though the adjustments in ad frequency and format have since mitigated some of the initial dissatisfaction.

In contrast, Netflix’s ad-supported subscription plan in Brazil and Mexico is performing well as part of its broader Latin American market strategy. In 2023, Netflix reported a US$4.44 billion in revenue for this market, up from US$4.06 billion in 2022, indicating a healthy growth trajectory in the region.

On this note, there exists a silver lining in this debate. Many may be willing to tolerate ads if it means saving money on their subscriptions. Research found that 64 per cent of US users would rather watch ads if it means saving on subscription costs, versus the remaining 36 per cent who would prefer to avoid ads with an ad-free option subscription.

Platforms like YouTube and Spotify have successfully reached a compromise, offering free versions supported by ads alongside premium ad-free subscriptions. Despite the presence of ads, these platforms remain immensely popular among users.

The future of advertising

As we look ahead, the relationship between content, advertising and consumers will continue to evolve. The main challenge for streaming services remains: To ensure ads are not excessive nor intrusive to push away viewers.

Advancements in technology will enable more sophisticated targeting and measurement capabilities, allowing advertisers to optimise and customise ad campaigns that are potentially more acceptable and impactful to consumers.

For instance, machine learning algorithms can analyse troves of data to identify audience segments and deliver personalised ad experiences in real-time. This data-driven approach not only increases the relevance of ads to viewers but also improves the return on investment for advertisers.

By delivering targeted, shorter and personalised ads, streaming platforms can unlock new opportunities for audience engagement. Gradually, the normalisation of advertisements in streaming media will take place as more platforms introduce ad-supported options. Consumers will become more accustomed to commercials as a routine of their viewing experience.

The article first appeared in CNA.