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TV Fans Stream Video to Escape Ads. Madison Avenue Is Racing to Catch Up

Watch Showtime for hours, and you’ll see such high-quality dramas as “Homeland,” “Ray Donovan” or “Shameless.” Commercials, however, have never been part of the deal. Nor are they the main attraction at streaming-video hubs, where consumers expect high-quality programming with fewer commercials — and sometimes none.

As the popularity of streaming video rises, however, the rules about where ads belong seem to be in flux.

Heineken recently built a sponsorship around “Billions,” the Showtime drama about crime and Wall Street. Viewers of the CBS-owned service couldn’t see it. But users of Roku, the broadband-video hub, certainly could. As part of a promotion around the launch of another season of “Billions,” a Heineken ad available on Roku helped viewers “unlock” the ability to stream the previous cycle of the show, all to build appetites for fresh episodes. “It’s fun for Heineken to associate themselves with a brand and content that would otherwise be ad free,” says Scott Rosenberg, Roku’s senior vice president and general manager of platform business. “It’s like a Showtime free trial brought to you by a brand.”

TV viewers are flocking to streaming-video services, driven in part by the impression that Netflix, Amazon, Hulu and others have cast off the burden of running dozens of commercials featuring Flo the Progressive Insurance lady or some Geico stunt. And yet, Madison Avenue is racing to keep up with them.

Hulu is testing what it calls “pause ads” — commercials that surface on screen whenever a user who subscribes to the company’s ad-supported tier pauses a selection — with two top-tier sponsors, Procter & Gamble and Coca-Cola. Amazon may not run ads during movies or series on its Prime Video service, but it is serving commercials on a different one, IMDb Freedive (and is also testing ideas on Prime, where an interactive ad for “Avengers: Endgame” allows users to get information about the film sent directly to an email address). Viacom, seeing the migration of viewers of all stripes to streaming, recently spent $340 million on Pluto TV, a free ad-supported streaming hub that will feature content from many of the entertainment conglomerate’s flagship TV outlets. And CBS sees ad-supported streaming as a way to build a foothold with younger audiences, says Jo Ann Ross, the company’s chief advertising revenue officer.

“It’s surging in a huge way,” says David Lawenda, CBS’ executive vice president of digital sales and sales strategy. “Everyone is trying to get into this space.”

To get there successfully, marketers need to work harder — particularly because consumers turn to streaming in part to avoid the glut of commercials found on regular TV.

“The vast majority are in the camp of they would prefer not to see them, but will tolerate them,” says Duane Varan, who has spent years exploring consumer interest in different kinds of video ads. Too often, Varan says, advertisers and media outlets simply run the same ad multiple times during a single video selection, which annoys consumers. “There is no added value from the repeated exposure.”

If Madison Avenue can get things right, there may be new money thrown at its efforts. Recent predictions suggest streaming video will gain fresh interest from many advertisers. Ad dollars spent on broadband video are predicted to surge 39% in 2019 to $3.8 billion, according to Magna, a media-research unit that is part of the ad giant Interpublic Group, and 31% in 2020 to $5 billion. Ad spending on Hulu is expected to rise 25.3% in 2019 and 22.7% in 2020, according to eMarketer. Meanwhile, eMarketer predicts ad spending on Roku to grow 54.5% this year and 45.3% next.

Heineken found a new way to reach Showtime’s “Billions” audience by making an ad that helped viewers “unlock” content on Roku.
Jeff Neumann/SHOWTIME

But figures can be deceiving. These ad-dollar totals are relatively paltry compared to the bulk of what is spent on traditional TV, which Magna says drew $42.7 billion in the U.S. in 2018. The growth in ad-supported streaming video comes off a low base, and advertisers aren’t certain if more is ultimately in the offing.

“Hopefully, the new streaming services will bring impressions back into the market and eventually expand audiences to a significant level,” says Lyle Schwartz, president of investment for the North America operations of GroupM, the large WPP media-buying unit. “Initially, action will be focused on the introduction of these services; they will then have to start producing information that demonstrates their value.”

To do just that, many of the streaming companies have introduced a bevy of intriguing ad formats. Streamers show fewer ads per episode, and many of them sport significantly more than just a slogan, jingle or kooky character.

At Hulu, for example, executives are working toward a day when half of the company’s advertising revenue comes from what Peter Naylor, Hulu’s senior vice president of ads sales, calls “non-disruptive ad formats.” Those can include the “pause ads” currently being tested, but also other concepts.

Jeremy Helfand, Hulu’s vice president and head of advertising platforms, notes the streaming video company, controlled by Walt Disney and Comcast, has long presented viewers with occasions when they can choose what type of ad they want to watch. “You have to put the viewer first, and there is a tremendous opportunity to do that in streaming television,” Helfand says. Streaming video has created other types of viewing occasions, he says, such as multiple-episode binges, catch-up viewing and pauses that call for new kinds of pitches.

As consumers grow more familiar with interacting with their video source, Hulu intends to explore ads that give rise to transactions. The company has already launched commercials that allow subscribers to use their remotes to request additional information. Some ad-industry experts believe the technology could eventually give viewers a chance to request other types of transactions, such as “telescoping” to a gallery of images that help tell a story about a product or service, or even making a purchase.

Advertising will likely play a role in keeping streaming services affordable for more people. Viacom executives believe “subscription fatigue is inevitable,” says John Halley, chief operating officer of ad sales for Viacom, referring to the dizzying array of new streamers that has been unveiled in recent months. The company’s Pluto TV, he says, can serve as a “reach extender” that adds impressions to the ones already generated by linear TV products, while free streaming can help marketers connect to consumers in ways with which they are already familiar.

“Even though younger consumers are saturated with smartphones, it turns out screen size is still a binding constant,” Halley says. “Longform programming demands big-screen viewing.”

Not everyone will attach ads to the new model, though. Disney’s Disney+ will not contain advertising, the company has said. AT&T’s soon-to-launch WarnerMedia portal will not have ads initially, according to a person familiar with the matter, though an ad-supported model is in the works. Netflix does not take ads, though Schwartz says a day will come when they will become a necessity for every streaming outlet.

“Netflix getting into the ad-supported game is an eventuality, I believe, but then again, I thought HBO would have gotten into some sort of sponsorship or branded content by now,” the executive says. “We’ll see…”

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