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    Streaming Media and the Case for Combining Advertising and Subscription Models

    Afton Brazzoni | Industry Analysis | 4th February 2021
    Streaming Media and the Case for Combining Advertising and Subscription Models

    Streaming media companies have been quick to realize the multiple benefits of combining revenue models, and have seized the opportunity to establish thriving subscription and advertising businesses. This move has proven to be a wise one in today’s world where personalization and convenience are highly valued by consumers.

    While many traditional publishers have their own subscription streams to complement their advertising businesses, others have been slow to adopt combined revenue models. In our recent report, Combined Revenue Models Gaining Traction in Media Industry, only 38% of publishers reported being “very or extremely focused” on increasing subscription revenue. 

    We think there’s a strong case for more media organizations to consider developing subscription revenue streams. These models benefit publishers, advertisers, and audiences alike, because they enable consumers to access high quality content in customizable ways, and they help brands develop loyal audiences and gather rich data. In this article, we’ll highlight 3 streaming services that have strong combined revenue models worth watching.

    3 Streaming Services Making Waves with Combined Revenue Models

    These companies are cutting edge in terms of their understanding that they can have both robust subscription and advertising businesses.

    1. Disney

    This household brand made headlines in October 2020 when the company announced a restructure of its media and entertainment divisions. The move was a response to the growing importance of the Disney+ streaming platform to the organization’s bottom line.

    ″[Consumers] are going to lead us,” CEO Bob Chapek said in an interview with CNBC. “Right now they are voting with their pocketbooks, and they are voting very heavily toward Disney+. We want to make sure that we are going the way the consumers want us to go.” 

    Prior to this shift, Disney+ had amassed 50 million paid subscribers by August 2020, and the company had 100,000 paid subscribers across the entirety of Disney’s streaming platforms. This success helped spur the organization’s decision to consolidate its media businesses into one area, which now oversees Disney+ as well as advertising sales and content distribution for the powerhouse brand.

    “Given the fractured nature of the theatrical distribution landscape and the wasteland that is the live events business—an industry that has yielded Disney untold riches through everything from cruises to Broadway shows—it’s a very convenient time for the company to emphasize its streaming efforts,” according to this article by Variety.

    Variety’s account of the motivation behind the change to Disney’s business model takes a skeptical tone. However, there’s truth in the statement that putting greater emphasis on subscriptions is not only a smart choice driven by consumer behavior—it’s a necessity in the current economic climate. 

    After all, even though Disney controls mega money-makers such as Marvel and Pixar, its streaming competitor Netflix has a higher market capitalization ($244 billion compared to Disney’s $233 billion). This indicates that putting a bigger focus on streaming is good for business—and traditional publishers should take note, even if their balance sheets are far more modest than those of Disney and Netflix.

    2. Hulu

    Savvy publishers know that implementing self-service advertising portal technology to streamline business is an excellent way to improve efficiency and customer experience in an increasingly complex media landscape. And now, streaming services like Hulu are catching on to this trend. It’s a win-win for Hulu because the company already has a strong subscription business.

    Hulu launched its self-service ad portal in July 2020, enabling brands to book their own promotional spots on the streaming service for as low as $500. The video clips must be 15 to 30 seconds in length; and advertisers can target audiences by age, gender, location, and area of interest through the self-service tool—all without interacting with a sales rep.

    “One of the things we’ve heard is it’s really difficult to advertise on TV or too expensive. We thought this would be a great way to help change that,” Faye Trapani, director of self-service platform sales at Hulu said in an interview with Digiday.

    Hulu’s self-service portal is positioned to appeal to smaller advertisers, which means we’re likely to see an increase in new entrants to the streaming ad market as a result of the launch—along with an influx of cash. Hulu’s offering may also give traditional broadcast networks, and even digital giants like YouTube, a formidable new rival.

    However, Hulu will first need to further develop its self-serve tool to ensure it is powerful enough for advertisers accustomed to Facebook’s and Google’s tools,” according to this article by Digiday.


    3. Spotify

    The streaming audio market is hot, hitting 1.5 trillion streams in 2019, and Spotfiy is dominating this space.

    Spotify already boasts 320 million active monthly users and has over twice as many paid subscribers as Apple Music. However, the company has its sights set on a greater audience than music lovers alone. Spotify is aiming to become a go-to source for podcast enthusiasts, having spent nearly $900 million in 2019 and 2020 combined on podcast-related acquisitions.

    “It's reported that Spotify paid $150 million in cash to acquire [podcast distributor] Anchor back in 2019,” according to this article by The Motley Fool. “In November 2020, Spotify spent $235 million in cash to acquire the podcast advertising and publishing company Megaphone.”

    These two acquisitions in particular indicate that Spotify is seeking to stake a claim in the podcast advertising market by purchasing a portion of the distribution network, and therefore the advertising spend dedicated to podcasts. Considering that 50% of all American households listen to podcasts, this medium is a good place to focus your efforts.

    Gain Expert Insight on Revenue Diversification 

    In the publishing industry, conversations about revenue diversification have become increasingly prevalent as media executives grapple with the effects of COVID-19 on their advertising income streams. Diversification is a wise approach to consider. But as a publisher, how do you get started down this path?

    Get the answers to this question and more in our report, Combined Revenue Models Gaining Traction in Media Industry, which includes insights from over 100 senior media executives, as well as revealing statistics about the future of the industry.

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