The Rise of Ad-Supported OTT Models

Over-the-top (OTT) platforms at first promised a big change from traditional cable and satellite television models and were dominated by subscription-based models with no ads. But the trend these days is toward ad-supported models, which, if you think about it, is basically going back to what TV always has been. It's nothing new: it's just new for OTT. But OTT advertising offers businesses some real benefits over traditional TV advertising.

The Rise of Ad-Supported OTT Models

Understanding the History

The early success of subscription-based OTT services depended on offering ad-free, on-demand content for a fixed monthly fee. This model appealed to viewers who were sick and tired of traditional TV's advertising interruptions and rigid programming schedules.

However, over time, the number of subscription services got too big. If you wanted to see everything, you had to buy multiple subscriptions. The jargon for this is "subscription fatigue," but in real terms it just means consumers got angry about it, and many simply couldn't afford it.

The OTT Advertising Bargain

Enter the ad-supported OTT model, which offers free or lower-cost access to content funded by advertising revenue. Platforms like Pluto TV, Tubi, and the ad-supported tiers of Peacock and Hulu have capitalized on this model.

For consumers, the trade-off is clear: they are willing to endure a manageable number of advertisements in exchange for free access to content. The key is getting this right. Too few ads, and a service can't afford to run. Too many, or too intrusive, and you lose subscribers.

Everyone Wins

What's needed is a situation where everyone wins.

For consumers, there's a growing acceptance that advertising can be exchanged for free content. Earlier disdain for ads fueled the initial success of subscription services, but the economy is much worse off now than it was back then, and many people are scrimping and now recognizing that advertising can subsidize costs and make their favorite entertainment more accessible. That's a win for them.

On the flip side, advertisers are increasingly attracted to OTT platforms because they can now target audiences more precisely than anyone could ever have dreamed of with traditional TV. OTT services collect data on viewer preferences and behaviors, and this allows advertisers to deliver highly personalized ads, which are thus more effective and cheaper. It's a win for them, too.

And what about content providers? They benefit from ad-supported models by expanding their audience reach. By lowering the barrier to entry, they can now attract viewers who might not be willing (or able) to pay for multiple subscriptions. This larger audience makes their platforms more attractive to advertisers. And if you're able to offer both subscription-based and ad-supported tiers, you can cater to different consumer preferences and maximize revenue potential. It's a win for content providers, too.

How It Works

Technological advancements are what really make the difference here. Dynamic ad insertion allows platforms to swap out ads quickly, tailoring them to individual viewers based on factors like their location, viewing history, and demographics. The same advancements also allow advertisers to make the viewer experience less intrusive.

The ad-based model works; the subscription model works, too. To learn more about how to make the most of it all, contact us at Lightcast.com now for a free demo.