Gideon Spanier
Jan 8, 2020

Advertising versus subscription

It's one of the great, unresolved issues in the industry, and advertising people should worry.

Advertising versus subscription

Striking the right balance between advertising and subscription revenues is one of the great, unresolved issues facing media owners and platforms.

The rise of online advertising has upset the equilibrium, because only a few tech giants, chiefly Google and Facebook, sucked up most of the growth in adspend in the past decade. This violent swing of the pendulum has forced a growing number of other media companies, particularly those in the business of creating and distributing high-quality content, to move in the opposite direction – towards subscription and, in some cases, to spurn ad revenue entirely, as Netflix has done.

Advertising people should worry. The most immediate danger is that consumers are being turned off by excessive ad frequency and bombardment, intrusive data targeting and inferior creative – all issues that have been identified by the Advertising Association’s Credos think tank. It cannot be a coincidence that favourability towards advertising has sunk to new lows, even as digital adspend has hit fresh highs.

The value exchange between free content and advertising is under strain and it is part of the reason why subscription video on demand (SVOD) has been booming. Consumption habits are changing, as streaming services invest huge sums in premium content and offer it in an ad-free environment, where the user has greater control. 

Zenith’s 2020 forecast warns "traditional mass audiences are shrinking" and "many lost audiences are replacing television viewing with non-commercial video". The reduction in opportunities to reach consumers and the fragmentation of audiences are having a knock-on effect because scarcity is driving up media prices, according to Zenith.

Ad-free streaming will keep growing in the short term as new players such as Disney+ and BritBox invest in the sector, even if the current levels of spend on SVOD content prove unsustainable in the medium term (when they might end up selling ads). Ironically, the streamers have become some of the biggest advertisers elsewhere in media as they battle for consumers’ attention.

All of this has major implications for brands, which must find new ways to reach consumers as interruptive advertising becomes more challenging. Marketers need to create more of their own content and experiences, as well as doing a better job of inserting themselves in media owners’ content through partnerships.

As Mark Read, WPP chief executive, says: "I don’t think the growth of streaming services means that the demand for marketing and ideas and ingenuity diminishes. If anything, it makes it more important and more valuable." Brands have "to think about expressing it in different ways", such as commerce, technology and experiences, Read argues.

Look at ecommerce firm I Saw It First’s role as fashion partner on the new, "winter" version of ITV’s Love Island. The clothes feature in the show every night and viewers can buy items via the programme’s app instantly. I Saw It First’s sales rose more than 600% after it took part in the summer 2019 version of Love Island.

Chris Evans’ "ad-free" Virgin Radio show, where content from the sponsor, Sky, is a seamless part of the editorial format, and Nike’s Breaking2, a live-streamed effort to break the two-hour barrier for running a marathon, are other examples of the fusion between brand and content. 

David Abraham, the former Channel 4 chief executive, who set up Wonderhood Studios as a hybrid creative agency and TV production company, talks about a new era of "content alignment between creators, platforms and brands" – not just transactional product placement or advertiser-funded programmes.

If there is a caveat, it must be journalism, where it is imperative to maintain editorial integrity, and brands must be kept at arm’s length. Yet advertisers can and should still support journalism. It will be bad for plurality and democracy, not just media, if access to trusted news is restricted to paying users – especially as politicians are so keen to resist scrutiny in the Johnson-Trump era.

Digital disruption is what set the pendulum swinging so wildly between advertising and subscription. We need a better balance if we want a more stable and sustainable media ecosystem for all in the new decade.


Gideon Spanier is global head of media at Campaign in London.

Source:
Campaign UK

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