Future of TV Briefing: Disney+ ad plan underscores the emergence of streaming’s dual-revenue stream

By Tim Peterson

This week’s Future of TV Briefing looks at how subscriptions plus advertising have become the streaming equivalent to traditional TV’s dual-revenue model of advertising plus carriage fees.

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The key hits:

Disney will join Discovery, NBCUniversal, Paramount and WarnerMedia in adding an ad-supported tier to its flagship streaming service.
Hulu and Discovery+ have shown that lower-priced, ad-supported tiers can generate more revenue per user than higher-priced, ad-free options.
The addition of an ad-supported tier can help Disney to capitalize on a supply-starved ad market and to address the streaming market’s subscriber growth slowdown.

Traditional TV’s dual-revenue stream has posed a dilemma for TV network owners shifting their businesses to streaming. But streaming has been developing its own dual-revenue stream, as most recently evinced by Disney’s announcement that Disney+ will roll out an ad-supported tier later this year.

“There’s always been multiple revenue models in the television business,” said Scott Schiller, a former NBCUniversal ad sales executive and global chief commercial officer at media and marketing services firm Engine.

That’s true of traditional TV. But streaming’s dual-revenue stream is a somewhat more recent phenomenon. For much of the past decade, streaming services’ revenue models largely split between subscriptions a la Netflix and Amazon Prime Video or advertising a la Pluto TV and Tubi. But then there was Hulu, which struck a balance between the two by operating a subscription-based, ad-supported tier. As seems to be commonly the case, Hulu’s is the model that the traditional TV network owners are now aping.

Discovery’s Discovery+ and NBCUniversal’s Peacock launched with subscription-based, ad-supported tiers. WarnerMedia’s HBO Max added one last year, as did Paramount’s Paramount+ (though technically Paramount+’s previous incarnation, CBS All Access, had already operated a subscription-based, ad-supported tier). And now Disney, which owns Hulu, will join the mix with its flagship streamer and seal the dual-revenue model’s imprint on the industry.

The reasons for companies to co-opt Hulu’s dual-revenue model are twofold and fairly straightforward. Those reasons basically boil down to traditional TV’s dual-revenue stream is dwindling and companies stand to make more money in streaming from a combination of subscriptions and advertising.

“Media owners will always maximize revenue models and be creative, especially as their most traditional, legacy models are challenged,” Schiller said.

Companies like Disney have enjoyed a dual-revenue stream on traditional TV — they make money from advertising as well as from pay-TV providers paying so-called “carriage fees” to carry their networks — and always needed to find a way to make at least as much money from streaming, be it from one revenue source or multiple. That need has taken on greater urgency as the pay-TV subscriber base has eroded, which can limit the number of ads the TV network owners have to sell and cut into the latter distribution revenue they receive from the pay-TV providers.

Meanwhile, in the streaming market, Hulu and more recently Discovery+ have shown the revenue upsides of operating subscription-based, …read more

Source:: Digiday