Spring 2022 may be remembered as when the media business began to rediscover advertising. In a flurry of announcements:

  • 1.51 million UK customers cancelled a streaming TV subscription in Q1, up from 500,000 the prior quarter, Kantar reported, saying: “British households are now proactively looking for ways to save”.
  • Netflix, whose prices had been increasing, duly confirmed it would finally introduce advertising on forthcoming, cheaper plans, in response to losing 200,000 global subscribers in Q1 and an expected two million in Q2.
  • That followed Disney+’s own announcement of an ad-supported subscription in late 2022.
  • Business news site Quartz said it would drop its paywall after three years.
  • CNN confirmed it would close CNN+, its $5.99-a-month subscription product, after just a month in operation.

Putting the headlines together, we are seeing indicators of what may be a shift - the augmenting of subscription content with a new focus on ad-funded media.

Content crunch drivers

The context is clear:

  • Inflation: The cost-of-living crisis is dampening consumers’ spending capacity. Kantar survey respondents showed growing tolerance for advertising in subscription TV services if it made them cheaper - from 38% to 44% in a year.
  • Competition: Early subscription-content exponents no longer have the field to themselves. Premium entertainment, with little lock-in, is now abundant.
  • Self-saturation: The biggest of services, those which launched in multiple global markets, are reaching a ceiling. Growth headroom is becoming harder to find.
  • New-normal recovery: Digital entertainment adoption boomed during lockdown; UK subscription video uptake reached 60%+ of households. But post-lockdown consumers are re-assessing their needs around their new daily routine as well as their bank balance.
  • Production pressure: The cost of premium programming has been propelled by tech companies and easy access to capital in a bull market. Now investors’ reassessment could mean less ability to resource the underlying offering.

History lesson

As much as the current moment may be a milestone, we have also been here before. The on-off fashion for media business models ebbs and flows with the economic tides - and with proprietors’ ability to predict their likelihood of success.

Wave 1 - pioneers and terrorists

Although many describe the lack of early paid digital content as an “original sin” of the web, several media owners attempted to pioneer the model.

  • Time Inc (1996): The publisher launched Pathfinder, a free one-stop web portal for all its magazines, in 1994. Two years later, with advertising income sliding, it debuted a $4.95-a-month subscription bolt-on, with an executive saying: “I don't think advertising will be as significant in this medium as it can be in [other media].” But the paid platform was closed just a year later, after drawing too few customers.
  • Slate (1998): Despite operating with ad funding for its first two years, the Microsoft-founded webzine launched a $19.95 annual fee, stating: “A lot of people will decide to go for subscriptions or go out of business. The economics don't make sense." Within a year, however, Slate knocked down its paywall, writing: “It now looks as if it's going to be easier to sell ads but harder to sell subscriptions than we thought.”
  • Salon (2001): The progressive webzine began by gating a fifth of its content behind a premium plan. When its already-low paid revenue evaporated immediately after the economic shock of 9/11, Salon went all-in on Premium. But further limits deterred readers. Today, a visit to the Salon is free with ad support.

Wave 2 - the ad mould is made

The next phase was characterised by increasing economic stability and growing internet maturity, but a continuing struggle to succeed.

  • TimesSelect (2005): The New York Times began charging $7.95 for opinion columns, personalisation and archive tools, gaining 227,000 customers in two years. However, in 2007, it closed TimesSelect to revert to all-free, saying: “We now believe opening up all our content … combined with phenomenal growth, will create a revenue stream that will more than exceed the subscription revenue.”
  • CNN Pipeline (2005): CNN initially added live, ad-supported video streams to its site in early 2005. By December that year, it launched a top-up service, removing ads for $2.95 per month. Two years later, it closed Pipeline, explaining: “It became clear to us that reaching true scale was going to be impossible if the product remained a pay service.”
  • FT.com (2007): Long seen as an exclusively paid publisher, the title switched to implement a softer, metered approach - not strictly as an advertising model but, rather, as a customer acquisition opportunity.

With the exception, for example, of steadfast WSJ.com and the nascent iTunes Store for music downloads, few media owners had successfully forayed into charging. The lessons learned set the tone for an era in which advertising would become the dominant business model for digital content.

This was when we began to see the emergence of ad servers, of targeting tactics, the dominance of digital-native platforms, the solidification of the ad-supported web - and of publishers’ growing frustration at its supposed inequity.

Wave 3 - bolstering beyond ads

The financial crisis of 2007-08 changed everything. Recession and austerity caused oceans of ad spending to dry up. By 2009, UK newspapers had shed a third of their advertising revenue in a year, prompting a bloodbath of media job cuts.

As though leaping from a slow-motion cinematic explosion, many media owners escaped the burning building that was the ad-funded model, in search of a broader foundation.

  • News Corp (2009): Rupert Murdoch’s demands that tech platforms and consumers should pay fairly for content crystallised into The Times launching its subscription model.
  • Axel Springer (2009): The European publisher advanced the cause in tandem.
  • The New York Times (2010): The “Gray Lady” implemented a metered system, now totalling 10 million subscribers across platforms.

The crash pushed publishers toward a charging model that has now driven the industry for 12 years.

Despite initial scepticism, the model has helped many media owners find their feet after economic turmoil, work around the dominant digital players and generate a base of their most loyal customers.

When they first started, proprietors did not enjoy ready access to either a large pool of online customers, viable payment processing technology or a culture of consumer payment.

By the time technology and behaviour had evolved to support both digital video delivery and payment, it was a given that streaming services like Netflix would be subscription-driven. Now barely an app launches these days without adopting the same model.

Behold, the fourth wave

However, what we may now be witnessing, in Q1 2022’s announcements, is the start of a fourth era in media business models.

Once again, it is a shift being pushed by economic headwinds and proprietors’ market positions. But, this time, the movement is a rediscovery of the role and growth potential of advertising.

On the buy side, many invested in advertising are rubbing their hands at the prospect:

  • Disney said “advertisers have been clamouring for the opportunity to be part of Disney+”.
  • From agencies, UM planning partner Lawrence Dodds and Mindshare have written excitedly about Netflix’s advertising options.
  • Ad-tech vendors are already making public pitches to facilitate ad delivery for Netflix.

To be clear, no-one should expect the majority of paid media businesses to simply switch off subscriptions, to lurch back to advertising alone. Subscription remains a hugely valuable model for a large number of premium content businesses. So this fourth wave will be less binary than those before it. For media owners, the emerging rediscovery of advertisers is likely to be additive, rather than substitutive.

The new ad opportunity

So, what could this new offer of advertising opportunities look like for ad planners, buyers and brands?

Lighting up dark inventory

In recent years, the growth in subscription media is widely seen as having reduced the available pool of ad inventory.

As established subscription services begin switching on new ad-supported tiers, they will be enabling large new pockets of ad space. Expect inter-tier migration within the largest services, as well as the creation of new customer cohorts whose engagement is entirely supported by ads - in other words, a stratification of on-offer audiences.

Rediscover the hard-to-reach

It isn’t just about the size of the pool. Many of the customers of subscription services are the kinds of audiences that, for advertisers, are attractive but increasingly hard-to-reach, people who have means but who have opted out of advertising.

The expansion of ad opportunities alongside subscription environments could give advertisers access to cord-cutters and high spenders who nevertheless are becoming more ad-tolerant.

Hybrid’s virtuous circle

That word, “alongside”, is key. Successful subscription operators are not about to throw away a model that, for many, has become their mainstay. By operating advertising and payments in tandem, they can offer the best of both.

Ad buyers will increasingly get to benefit from the first-party data latent in media proprietors’ CRM systems, data carrying signals like topical interests and local address.

Rather than discourage advertising, publishers like The Times are aiming to enhance the ad experience. It sees serving its more-than-400,000 subscribers as crucial, but advertising is also targeted as a key component of future growth. This symbiotic approach will become more common.

Ad-native channels’ second wind

Don’t look only at subscription operators expanding into advertising territory. In this new context, publishers that play solely at the ad-supported end of the spectrum also stand to make a solid offer.

Brand-new, ad-supported video-on-demand (AVOD) operators like Tubi and Pluto, providing free, ad-supported TV (FAST), already looked increasingly well placed as the economy darkened.

From ITV, which has struggled to make subscriptions succeed, the forthcoming ITVX platform now promises to re-invent its heritage of ad-supported free programming for an era of targeted TV ads. Meanwhile, we are still seeing the launch of new properties like TalkTV, Amazon’s FreeVee and niche channels like Tennis Channel’s T2.

Outside of products from tech platforms, we really haven’t seen the launch of new, ad-funded media brands at this kind of pace in perhaps 15 years.

Complexity’s next level

If you thought the challenges of cross-platform media measurement were a hot topic already, things could get more complex when more ad-friendly channels are operating across different platforms.

BARB now measures subscription video consumption, to a fashion, but operators like Netflix are going to need to both adapt to the peculiarities of the UK’s TV ad delivery workflow - which involves upfront regulatory clearance for creative assets and is far from a real-time process - and help ad buyers plan and measure across all of their screens.

Brand content redefined

The rediscovery of advertising carries interesting ramifications for branded content. In some ways, the tactic, which is now established, has grown up thanks precisely to that shrinkage in traditional ad inventory.

But a renaissance of the latter doesn’t necessarily mean it is time-up for brand content.

For the whole decade in which commentators have imagined the execution of ads on Netflix, most had assumed it would take the form of branded content and product placement, rather than commercials.

In fact, every utterance from Netflix executives in April described their upcoming model as “advertising”, not some branded content half-way house. But, with the company due to develop its proposals over the next couple of years, the exact formats to be offered are not yet certain.

The blended media future

The challenges and opportunities swirling around brands and publishers are conspiring to suggest a shift, one that may mean advertising is becoming a clear pathway to audiences again.

This may delight many advertisers who had been looking to add more tools to their belt.

And, given the extent to which this trend will be economically-driven, the new ad focus is likely to be more than just a seasonal fashion.

The Bank Of England does not expect inflation to stabilise until 2024. When, or whether, consumer living standards and disposable income will increase is anyone’s guess.

By that time, many media channels will have switched on to advertising again.