By: Joshua Finley

Streaming Giants Are Reinventing Television Advertising Through Interactive Shopping and Free Content

Despite the rise of competing sources of entertainment like video games and social media, television remains one of America’s favorite pastimes. More than 97% of American households own at least one TV set, with viewers aged 15 and older averaging about three hours of screen time per day on televisions alone [Source]. Once reliant on traditional cable broadcast services, over-the-top (OTT) streaming companies like Netflix, Roku, and Amazon fundamentally disrupted how consumers connect to their favorite programs. While this major shift has made watching TV easier than ever before, it has also introduced complexities to capturing profit from licensed content. These complexities have made for a turbulent decade in the entertainment media industry, with billions of dollars changing hands since the 2010s in an attempt to course-correct for consumers’ rapidly growing expectations from their TV experience. 

The ongoing Warner Bros. Discovery merger debacle illustrates the challenges traditional media companies face in staying competitive. The $43 billion deal, finalized in 2022 between AT&T’s WarnerMedia and Discovery, aimed to create the most “differentiated content portfolio in the world.” It launched the streaming platform Max in May 2023, consolidating HBO Max and Discovery+ into one app to deliver premium content. While the move was intended to boost subscriber engagement, the merged company has faced significant challenges. Stock prices have fallen dramatically, and criticisms about content removals and unmet expectations for the streaming service have raised questions about the merger’s effectiveness.

Where the premium streaming model lagged in demonstrating profitability for Warner Bros. Discovery, an old friend of media revenue models has returned with a vengeance: advertising. Among the strategies garnering the most attention with streaming services are free ad-supported television (FAST) TV subscription models and interactive, shoppable ad experiences.

The “Golden Age of Advertising”

For the majority of its existence, television programming has been powered by ad revenue. The first-ever TV ad aired in 1941 before a Brooklyn Dodgers versus Philadelphia Phillies game, portraying nothing more than the Bulova logo (that of the advertiser) and a voiceover of the tagline. TV ownership in the United States climbed to 95% by 1965, coinciding with what is often referred to as the ‘Golden Age of Advertising’ — a wave of creativity and innovations in how marketers communicated with their audiences. Irrevocably mesmerized by the glowing tube parked in their living rooms, the American public became acquainted with iconic figures like Ronald McDonald and the Pillsbury Doughboy as they consumed sports, news, and TV shows. 

Apple unveiled its Macintosh computer two decades later with the iconic “1984” Superbowl ad. TV ads had officially graduated from cutesy sales pitches and infomercials to powerful narrative storytelling, with a price tag to match: The ad cost approximately $500,000 to produce and $525,000 for a 60-second airtime slot. Broadcast advertising had clearly made significant strides as a medium for brands to get in front of consumers, with broadcast networks possessing major leverage as the keyholders of the public’s undivided attention.

Disruption in Programming

Major technological advancements led to the birth of a pivotal challenger in television media in 1997: Netflix. Originally a mail-order DVD service, Netflix wisely invested in online streaming capabilities early on and was able to provide millions of users with on-demand access to their favorite movies and TV shows. As other streaming platforms like Amazon Prime and Hulu followed similar strategies, consumer preference shifted in favor of OTT streaming versus traditional broadcast for its modern, flexible approach to television content consumption.

The one thing many streaming platforms had in common around this time was their subscription-based business models. Rather than funding their programming from ad revenue, these platforms rely primarily on subscriber fees. Over time, the growing cost of business and an influx of competition prompted OTT streaming platforms to seek new ways to build revenue without sacrificing the user experience. Rising subscription prices have plagued connected television (CTV) users for several years now, illustrating the growing financial pressures on the entertainment media industry. With consumers growing weary of inflation and rising costs across their household expenses, brands with marketing budgets have begun to share the burden of the cost of OTT streaming.

TV Advertising Comes Full-Circle

Not long ago, TV advertisements felt like little more than a memory for CTV users. Although the ad-free binge-watching experience has become a cultural staple in the digital age, the subscription-based model that spurred it has proven to be an unsustainable revenue model for OTT platforms. Innovation in advertising solutions like FAST TV and shoppable ads are ushering in a new era of possibilities for platforms looking for growth, and several retail media networks are already making moves to support these newfound revenue streams.

Just last year, Walmart and Peacock partnered up to present a new shoppable ad experience, using AI to identify objects within scenes and match them to items available at Walmart. Encouraging viewers of the program “Below Deck Mediterranean” to ‘shop the moment,’ Peacock aired special episodes accompanied by an interface that allowed them to scroll through products onscreen and use a QR code to purchase their finds.

“For so long, viewers had to take the hard route, scouring the internet to find a product like what they saw their favorite icons or creators use in-show,” said Josh Feldman, Global Chief Marketing Officer of Advertising & Partnerships at NBCUniversal. “Now… Bravo fans can get even closer to the content they love by discovering brands that are already part of the story.” [Source]

Amazon Prime is also exploring strategies in shoppable TV, introducing a suite of interactive and shoppable ad formats in 2024 on its ad platform. According to Amazon, advertisers found interactive ads to be more effective in boosting engagement rates across the customer journey, driving 10x more product page views and conversions than non-interactive formats. [Source]

FAST TV, a streaming concept that enables users to watch TV for free with advertisements, has also been gaining traction. One study found that 66% of American television viewers use FAST TV platforms each month. Among prominent FAST TV platforms are familiar names like Tubi, Pluto, and Amazon’s “Watch For Free.” As a matter of fact, YouTube also qualifies as a FAST platform, often displaying ads ahead of otherwise free user-generated content.

Looking Ahead

While FAST TV and shoppable ad experiences appear to be a boon for both digital advertisers and OTT streaming platforms, they still require some experimentation and validation to be certain.

“Media companies that invest in interactive ad capabilities have the opportunity to define the next era of television advertising,” says Joachim Over, an M&A advisor with over a decade of experience in brokering tech deals. “There will be some trial and error in this sector for the next couple of years, and those that successfully dial in the technology will have a lot of leverage in the advertising game.”

Joachim is a Senior Partner at Ignatious, a boutique merger and acquisition advisory firm dedicated to matching technology companies with blue-chip strategic buyers and leading private equity firms.

“Networks or other publishers who don’t have this tech are likely to miss out on a new ad format, and that means less ad revenue in their pockets,” predicts Joachim. “Platforms will be highly motivated to add this feature to their digital experience because it could ultimately mean growing their value as a company.”

Published By: Aize Perez