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The Rise of Subscription Video: What Advertisers Need to Know

A new survey from Leichtman Research Group notes a growing adoption of subscription video on demand (SVOD) services among U.S. viewers. 64% of homes now have an SVOD service like Netflix, Hulu, or Amazon Prime Video, an increase from 47% in 2014. In addition, over half of those households subscribe to more than one of the major SVOD services.

While the rising popularity of SVOD may be good news for viewers looking for more online content options, it begs the question: how should advertisers react? After all, pairing great content with engaging ad creative has been the lifeblood of the advertising industry for decades. While there’s no quick answer to this question, here are three ideas to keep in mind as subscription services gain in popularity.

Non-traditional advertising opportunities are growing
SVOD leader Netflix owes much of its success to its “ad-free” subscription model. But don’t assume that means there are no branded opportunities on the popular streaming service. In fact, major beverage and electronics companies have found success in placing their products within popular Netflix shows like “House of Cards.” While this is a lot more complex and a lot less certain than a media buy, it’s a very effective means of associating your brand with a specific program. Another thing to keep in mind when advertising space is either limited or non-existent, are the opportunities to capture a show’s audience outside of the program itself. Game of Thrones is an excellent example of a pop culture hit with a huge fan base that is commercial-free. Advertisers have found plenty of ways to connect with the show’s fans by advertising on the many media outlets that regularly publish content about GOT.

Look to other opportunities with connected TV and ad-supported SVOD
Netflix and Amazon Prime Video may currently eschew ads, but advertisers looking to connect with those viewers still have plenty of options. Consider the rising popularity of connected TV devices like Apple TV and Roku. One recent study suggested that 60% of US households now own a connected TV device. The good news with connected TV services is that many include programming that offers an emerging array of advertising opportunities. Let’s also not forget about Yahoo’s ad-supported TV platform “View,” which features popular Hulu content.

Don’t rule out ads on popular SVOD services in the future
Will Netflix ever offer ads to its growing audience of viewers? While unlikely, it’s certainly tempting to speculate on the opportunities it would create for brands as well as what it could mean for Netflix. According to some estimates of audience size, time spent, and advertiser demand, Netflix is turning down a big opportunity to fund its future content efforts with advertising. One recent estimate suggested the company could be losing out on more than $2.2 billion in ad revenue per year.

As subscription video services continue to evolve their offerings for both viewers and advertisers, opportunities for brands to reach audiences through addressable and connected TV are also rapidly shifting. We’ll be keeping an eye on how brands are balancing video advertising across all screens and devices and how viewers are responding.