As the streaming wars intensify, calls for Netflix (NFLX 0.25%) to expand into digital advertising have grown in recent months. Needham analyst Laura Martin reiterated that point in December, arguing that introducing ads into the mix could help subsidize lower price points and strengthen Netflix's position as it fends off competition from new entrants like Disney and Apple, which are pricing their new services very aggressively. Netflix remains adamantly opposed to the idea, with CEO Reed Hastings recently saying he remains "very comfortable doing no ads."
The video-streaming pioneer may want to reconsider its strategy after seeing this new survey.
Image source: Getty Images.
Most consumers will watch ads in exchange for lower prices
This week, The Trade Desk and YouGov released a survey on how consumers view streaming services, and there are numerous important implications for service providers. Over half (53%) of respondents indicated that they would be open to watching ads if that would help reduce the price of the service.
Consumers are also tired of seeing the same commercials over and over again and would prefer to watch more relevant ads if that resulted in viewing fewer ads. That underscores the value of sophisticated ad targeting, which is extremely limited in the context of linear TV, where advertisers rely on traditional ratings in an effort to appeal to certain demographics.
In contrast, digital advertising on over-the-top (OTT) platforms like Roku enables precise targeting based on a greater range of specific variables. It's worth noting that The Trade Desk may not be completely objective here. As a self-serve ad tech platform that specializes in targeting across mediums, the company is somewhat biased in favor of ads.
Still, the results show that there is at least some appetite for ads among U.S. streaming viewers -- enough that Netflix should evaluate the strategy.
The survey also finds that Netflix is the most popular service, with 53% of U.S. households subscribing. Amazon comes in No. 2 at 43% with Prime Video, while Disney-controlled Hulu ranked third at 29%. The results are based on an online survey conducted on over 2,600 U.S. adults in late November.
Are ads the "future of streaming TV"?
Netflix implements price increases every few years, which have done wonders for its business and helped fund original content costs, but the company may be approaching a limit. Most consumers (59%) are unwilling to pay over $20 per month for a streaming service. An overwhelming 75% of respondents said they wouldn't pay more than $30 per month.
Netflix's most popular Standard plan currently costs $13 per month, and AT&T's HBO Now sits at the premium end of the spectrum at $15 per month. The only services that cost over $30 per month include some type of live TV component, like Hulu + Live TV, which just saw its price bumped from $45 to $55 per month. DISH's Sling has a basic live TV package that starts at $30 per month.
The onslaught of new services is starting to weigh on consumers. Cutting the cord is simply being replaced with a modern cable bundle made up of disparate streaming services billed through separate providers. "With consumers experiencing subscription fatigue and unwilling to subscribe to more than one or two premium services, broadcasters have to figure out how to continue to fund this new golden age of TV," The Trade Desk Chief Strategy Officer Brian Stempeck said in a statement.
Unsurprisingly, Stempeck's takeaway from the survey is that "ads will fund the future of streaming TV."
