Should Netflix and Amazon look to ads for more revenue?

A new study shows that spending big on originals isn't as valuable as SVODs may think, and it may be time to look for money elsewhere.
June 10, 2016

How enjoyable would the user experience on Netflix and Amazon Prime Video be if ads were part of the program?

According to a new study by Gfk research, we may be about to find out. The survey found that if those services want to keep on their trajectory of acquiring exclusives and pumping out new originals, they’re going to need a new revenue stream – and that could mean ads.

While the SVODs have risen to sky-high popularity without the help of banner, pre-roll or mid-roll ads (rival SVOD Hulu has an ad-supported option as well as a pricier ad-free offering), the poll of streaming users in the U.S. market found that the revenue will either have to come from ads or higher subscription prices (which, unsurprisingly, aren’t likely to be popular).

The survey dug a little deeper to find rising fees is likely not the answer.

According to Gfk, the biggest factor for customers to subscribe to a particular SVOD was cost. A full 75% of users cared more about cost-effective services than the content on it.

The survey found that the most subscribers would be willing to pay per month is $10 to $11, on average — which is currently what most are priced at (the current monthly fee for Netflix’s standard pan is $9.99, while Amazon’s newly unveiled monthly service costs $10.99).

The survey is at odds with the audience-growth strategies currently being employed at many SVODs — particularly Netflix.  Most have been pouring resources into acquiring exclusives and producing originals lately as they look to set themselves apart in a crowded streaming market.

Netflix, for instance, is focused on acquiring or producing as much exclusive content as possible. Last year, the service said good-bye to a huge chunk of its library when it declined to renew a deal with distributor Epix, which holds the rights to titles like The Hunger Games and Wolf of Wall Street (pictured). Epix then signed a deal with SVOD Hulu, which has chosen to follow a broader licencing strategy (although it has ramped up its exclusive acquisitions as of late, with titles such as Curious George, Eight Days a Week and Sonic Boom).

However, those investments may not be paying off as well as anticipated. When asked about the reasons why they subscribed to a streaming service, survey respondents ranked exclusives and originals ninth among the top reason (47% of major streaming users). Access to content not available on regular TV services was the twelfth most popular reason (38%).

Companies may also have their work cut out with them when it comes to competition — another survey, this one by Strategy Analytics, found the market for SVODs is nearing saturation, with growth in revenue showing the first signs of slow-down this past year.

The recent Gfk survey was conducted among 2,311 people in the U.S. between the ages of 13 and 64, 1,007 of whom were regular users of a major streaming service.

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