
What Pricing Experts Need to Know About Ad-Supported Streaming š
Streaming platforms are changing. Once the haven for ad-free entertainment, theyāre now shifting gears. Disney, Netflix, and others are embracing ad-supported streaming, promising more affordable options while boosting their own revenue streams. At first glance, this seems like a win-win. But dig deeper, and youāll find challenges that both businesses and customers face.Ā
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Disneyās recent pricing moves highlight this shift. By raising the price of their āad-freeā subscriptions, they nudge more users towards cheaper, ad-supported plans. Itās a bold strategyābut not without its pitfalls. Letās explore why platforms are making this push, the pros and cons, and how to navigate this tricky environment.
Why Ad-Supported Streaming Are on the Rise
Streaming platforms are in a tough spot. Competition is fierce, and customers are quick to cancel subscriptions when budgets tighten. Ad-based tiers provide a solution. They allow companies to attract price-sensitive customers while generating revenue from advertisers.
Disneyās CFO, Hugh Johnston, explains that ad-supported plans bring in more money per user than ad-free ones. Itās simple math: subscriptions + ad revenue = higher profits. This model also mirrors traditional TV, blending streaming convenience with familiar advertising.
The ad-supported streaming strategy is workingāfor now. Disney reports that 60% of new subscribers choose the ad-supported tier, proving thereās demand for lower-cost options. But is this sustainable?
Ad-Supported Streaming Versus Premium Plans
Ad-supported streaming versus premium plans is a key decision for businesses and consumers. With ad-supported streaming, companies can attract a broader audience by offering a low-cost or free service. The model generates revenue through ads, making it accessible to those who might not want to pay for a subscription. For example, a small business in the entertainment industry may choose an ad-supported platform to reach more customers without significant upfront costs.
On the other hand, premium plans provide an ad-free experience, often at a higher price. This model appeals to consumers who value uninterrupted content. Premium plans offer more predictable revenue, which can be vital for businesses that need stable cash flow. For instance, a streaming service focusing on niche content might find premium subscriptions more reliable, despite having fewer subscribers than an ad-supported service.
However, businesses must consider the balance between pricing and value. While ad-supported streaming can attract large audiences, it may face customer churn if the ads become too disruptive. Premium plans, though more consistent in revenue, might limit access for cost-sensitive users. Ultimately, understanding your target audienceās preferences is crucial in deciding which model best aligns with your pricing strategy and business goals.
The Pros of Disney and Other Platforms’ Ad-Supported Subscription Tier
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Ad-based models arenāt all bad. For customers, they provide an affordable way to access content. Someone who couldnāt justify $18 a month for Disney+ might find $10 with ads more reasonable.
For businesses, the benefits are even greater. Ads generate consistent income, even from users paying less upfront. Advanced targeting tools, like AI, ensure these ads are effective, making them more attractive to advertisers.
Ad-supported tiers also broaden the customer base. They capture people who might otherwise skip streaming altogether. This opens doors for growth in regions where affordability is key.
Where Ad-Supported Streaming Gets Tricky
But ad-supported streaming comes with challengesāboth for companies and customers.
For users, the experience isnāt always smooth. Many people subscribe to escape ads, not sit through them. On Hulu, for example, some ad breaks run as long as 13 commercials. Even Disneyās so-called āad-freeā tier includes limited ads, leaving users frustrated.
For businesses, balancing ad-based and premium tiers is a juggling act. Push too hard on ads, and you risk alienating loyal customers. Constant price hikes for ad-free plans may seem strategic, but they can erode trust.
And then thereās the risk of brand dilution. Streaming platforms pride themselves on offering premium, seamless entertainment. Too many ads can make a service feel more like free-to-air TVāa far cry from the polished image these companies work so hard to maintain.
Common Assumptions and Mistakes in Streaming Services
A major mistake platforms make is assuming all customers value savings over experience. Sure, some will tolerate ads to save a few dollars. But many pay for streaming to avoid interruptions. If ads become intrusive, customers may cancel altogether.
Another misstep is relying too heavily on AI. Disneyās use of AI to optimise ad placement is impressive, but itās not foolproof. Poorly targeted ads or repeated interruptions can damage the user experience. Customers donāt care how smart the AI isāthey just want a service that feels worth their time and money.
Lastly, platforms often assume price increases wonāt impact retention if content is strong. But even the best content canāt always justify constant hikes. Customers start to feel squeezed, questioning whether theyāre getting real value.
How to Navigate the Era of Ad-Supported Streaming
Streaming platforms must tread carefully. Success lies in balancing revenue goals with customer satisfaction. Hereās how they can get it right:
Offer Clear Choices: Customers value transparency. Clearly outline what each tier includes and deliver on those promises. If a plan is āad-free,ā make it truly ad-free.
Keep Ads Relevant and Limited: Respect the audienceās time. Use targeted ads sparingly and ensure they align with viewersā interests. Long, repetitive ad breaks are a quick way to lose trust.
Donāt Overprice Premium Tiers: Raising prices is sometimes necessary, but moderation is key. Customers will accept small, occasional increases if they feel the service remains worth it.
Focus on Quality Content: Great content is still the heart of streaming. Invest in unique, engaging shows and movies that keep subscribers loyal, regardless of the tier they choose.
Listen to Feedback: Customers arenāt shy about sharing their opinions. Use surveys and social media to gauge satisfaction and adjust accordingly.
Ethical Use of Data in Setting Ad-Supported Streaming Prices
Ethical use of data in setting ad-supported streaming prices is a critical concern for businesses today. In ad-supported streaming, platforms rely heavily on user data to personalise ads and adjust pricing models. However, businesses must ensure they use this data responsibly. For instance, collecting data on viewing habits can help tailor advertising to specific audiences, making ads more relevant and engaging. However, using this data without clear consent or transparency can lead to trust issues and even legal complications.
Itās essential to strike a balance between personalisation and privacy. If a streaming platform offers personalised ads based on user behaviour, they must be transparent about data collection practices and ensure users have control over their information. Ethical data use can build long-term customer loyalty and improve overall satisfaction.
Additionally, businesses should avoid overcharging users based on data profiles. For example, offering higher pricing to certain groups based on their viewing history could be seen as unfair or exploitative. Instead, a fair pricing strategy should reflect the value provided to all users, regardless of their data profile.
In the end, ethical data use in ad-supported streaming not only aligns with legal requirements but also fosters trust and enhances customer relationships.
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Ad-Based Pricing Done Right
Ad-supported streaming is here to stay. For streaming platforms, they offer a way to grow revenue and reach new audiences. For customers, they provide affordable access to beloved content.
But this shift comes with risks. Platforms like Disney must carefully manage the trade-offs between cost, experience, and value. Getting it wrong could lead to cancellations, frustration, and long-term damage to brand loyalty.
For professionals navigating pricing strategies, the lesson is clear: put the customer first. Whether through transparent communication, fair pricing, or a commitment to quality, building trust is the best way to thrive in the evolving world of streaming.
After all, happy customers are the ultimate subscribers.
Are you a business facing challenges similar to these streaming platforms? Letās continue the conversationāshare your thoughts or questions. Together, we can explore the best strategies to help your business thrive in this ever-changing landscape.
For a comprehensive pricing strategy to prevent revenue loss in your company,Ā Download a complimentary whitepaper on How to Drive Pricing Strategy to Accelerate Sales & EBIT Growth.
Are you a business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?
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You can also email us at team@taylorwells.com.au if you have any further questions.
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