Streaming video-on-demand services (SVOD) have witnessed a transformative change in recent years. As the competition among service providers intensifies, companies are adopting a new strategy to combat rising costs and attract more customers – introducing advertising-supported tiers (AVOD). While these platforms initially offered ad-free viewing experiences, we are now seeing a shift towards ad-tiers, where customers can choose to opt for a lower-priced subscription with limited ads. Some of the big players are now offering cheaper ad tiers, such as Amazon Prime, which launched in February 2024 ad tiers for UK users. However, Amazon has stated that there are “limited advertisements” that only include content within the standard tier. Not only is this method proving to be successful in attracting new subscribers, but it’s also for retaining users and generating more revenue from those existing relationships. For example, in the US, 35% of TV and video streamers have paid for an upgrade to avoid watching ads.
Attracting and gaining ad-tier subscribers is one thing, but services need to be able to build trust with their subscribers to be able to retain them. One major problem with advertising is that the majority of providers are not using the data they have at their fingertips to enhance the advertising experience. There is a massive opportunity for advertisers; it’s been reported that, while streaming OTT, 40% of people have paused their program to find or purchase what was advertised. If service providers stay siloed and only use demographic information, for example, they are missing opportunities not only for their advertisers to generate revenue. With the turbulent market and the cost of living crisis, SVOD services have had to pivot but it’s vital to keep the customer experience central to every strategy they pursue. And advertising tiers are no different.
However, this shift towards ad-tiers comes with its fair share of concerns. Viewers are understandably worried about the overall ad quality and relevance, as well as the potential disruption to their viewing experience. It’s not surprising that 79% of users are bothered that ads are repetitive. Advertisers are wrestling with the challenge of effectively targeting their audience amidst the availability of different subscription tiers. There is a need to strike a balance between generating revenue and maintaining a positive user experience. With the right AI and ML solutions, advertising experiences can do just that, by enhancing the quality and relevance of the ads to ensure that users are happy with the adverts they are being shown.
Understanding user behavior and preferences is crucial to tailor relevant advertisements to their interests. Let’s explore how ad-tiers can impact the customer experience by focusing on ad quality, ad relevance and help build trust with customers.
Ad Quality: Enhancing the Viewer’s Experience
Streaming services understand that ad quality plays a vital role in maintaining a positive user experience. The obvious one is that ads should be produced to a certain standard. However, when it comes to VOD ads, it’s all about placement, mitigating the risk of annoying or disruptive advertisements. Additionally, controlling the frequency and placement of ads can further prevent user frustration.
Ad Relevance: Make the Most of the Opportunity
One of the significant advantages of ad-supported tiers is the potential for delivering highly targeted and relevant advertisements. With access to user data and preferences, service providers can optimize ad placements based on individual viewing habits and interests going beyond demographics. By tailoring ads accordingly, streaming companies can present users with content recommendations, exclusive offers or sponsored content that aligns with their specific interests. As well as contributing to a positive customer experience, as personalization also increases the likelihood of users engaging with the ads. One study found that 30% of participants preferred ads relating to their personal interests or hobbies.
Impact on Building Trust with Users
a. Transparency:
Maintaining transparency is crucial while leveraging user data for personalized advertising. Service providers must clearly communicate their data collection and usage practices to gain the trust of their users. Transparency builds confidence that user data is handled responsibly, ensuring that privacy concerns are addressed and user consent is obtained. This is evidenced by 48% of consumers appreciating the convenience of personalization as long as their data isn’t compromised.
b. Non-intrusive Approach:
By minimizing the frequency of ads and avoiding intrusive formats, such as pop-ups or interstitials, providers can show they prioritize customer satisfaction over mere monetization. Research by Aluma indicates that nearly half (49%) of Netflix’s “Basic with Ads” subscribers find the ad load “heavy,” with 17% considering it “excessive.” Therefore, recalibrating ad frequency becomes essential to address this concern.
c. Opt-In and Opt-Out Options:
Offering users control over their advertising experience is fundamental. Services should provide opt-in and opt-out options for personalized advertising, giving users the flexibility to define their preferences. By respecting user choices, service providers can establish a harmonious relationship with their audience based on trust and user autonomy.
The introduction of ad-supported tiers in services has brought about a significant shift in the industry. Service providers now have the opportunity to enhance the customer experience while still offering cost-effective alternatives. By focusing on ad quality, ad relevance, and user trust, streaming companies have the potential to build a sustainable business model that caters to changing consumer demands. By striking the right balance between personalized advertising, transparency and customer service, SVOD providers can ensure they remain competitive in this evolving landscape, ultimately benefiting both providers and users alike.
If you have any questions about how to improve your advertising strategy with personalization, get in touch!
