The global video business is experiencing a significant shift, with advertising set to take the lead in revenue generation over traditional pay models. Following a brief period of increasing pay revenue, industry analysts predict that advertising will become the primary revenue source for the media and entertainment sector, surpassing pay TV and subscription video-on-demand (SVoD) services by 2028.
According to a recent report by Omdia, a London-based analysis firm, online video advertising is projected to exceed $200 billion in 2023 and is expected to reach $327 billion by 2028. This transition reflects the challenges faced by SVoD services, which have plateaued, limiting the introduction of new major streaming platforms.
The push towards a hybrid model, combining advertising and subscription tiers, is gaining momentum, with Netflix leading the charge. The streaming giant recently launched an ad-supported tier in 12 countries, accounting for 6% of subscriptions and contributing an additional 1% to ad revenue in 2023. By the end of 2024, all major SVoD services are anticipated to offer similar ad-supported options.
Tony Gunnarsson, principal analyst for TV, video, and advertising at Omdia, notes, “We’re currently in Phase II of a broad trend from pay to free,” emphasizing that major streaming services will soon re-evaluate their pricing and terms to steer users toward ad-supported tiers. He also predicts an increase in ad-centric pay-TV bundles and standalone streaming packages featuring a shared ad-technology framework among rival services.
The rising popularity of advertising-based models is evident in the success of platforms like YouTube and Free Advertising-Supported Streaming Television (FAST) channels. In India, for instance, Samsung TV Plus offers a selection of 118 channels, and DD Freedish provides 189 free-to-air channels, showcasing the rapid growth of ad-supported video content in the market.
Despite the stable number of 1.07 billion global subscribers to paid video services over the past two years, the introduction of ad tiers is generating renewed interest. In the US and UK, where Netflix implemented its ad tier and enforced password-sharing restrictions, subscriber growth has surged dramatically.
Gunnarsson notes that bundling is playing a crucial role in this evolving landscape, with popular streaming services increasingly available through pay-TV packages, telecom products, and various customer loyalty programs. This approach mirrors the traditional cable TV model, where customers pay a fixed monthly fee for a bundle of content and services.
The irony of this shift is striking. Streaming services, initially established to disrupt linear television, are now gravitating back toward a cable-like structure in pursuit of scale and profitability. As the industry adapts to changing consumer preferences and market dynamics, the emergence of new disruptive video services—potentially driven by artificial intelligence—remains on the horizon.
In summary, as the global video landscape shifts from pay models to ad-driven revenue, industry stakeholders will need to navigate this evolving terrain to remain competitive and meet the demands of an increasingly diverse audience.
