Jon Kirchner, CEO, Xperi.
The rise of streaming services unlocked an era of ad-free entertainment many of us have enjoyed for years. But the days of predominantly uninterrupted viewing appear to be winding down—at least for some.
Increasingly, we’re noticing ads again making their way into our favorite shows, a throwback to the historic TV ad models we’d long abandoned for subscription-based content. What’s different? There’s now an opportunity to craft a better experience—for everyone.
Many of us have love-hate relationships with ads. As the leader of an entertainment technology company, I appreciate the importance of advertising and the need for content providers to monetize their offerings. But I don’t relish a peppy commercial for something I’d never buy popping up in the middle of an intense movie scene.
For me, an ad that resonates is high quality, creative and informative—think Super Bowl commercials—as well as relevant to what I’m watching and my interests. New technology is now making it increasingly possible to curate that experience for consumers, while simultaneously solving common pain points for brands and advertisers.
Here’s how we got to this place and what the future of streaming and ads may hold.
How We’ve Come Full Circle—Almost
Many of us remember tuning into half-hour TV comedies shaved to exactly 22 minutes, with appropriate pauses in the script for commercial breaks. Despite best efforts, limited audience data often left us with commercials disconnected from the content or much of the audience—a drag on the entertainment experience.
As streaming services gained momentum, they sought a different approach to financing their platforms. Instead of relying on ad revenue, they focused on building massive subscription-based audiences. Viewers would pay a reasonable fee for the luxury of great, commercial-free content. That was the vision, for the moment anyway.
But in recent years, the extensibility and growth of that model has faltered. Streamers are shifting from the goal of expanding audiences to reaching profitability. This pivot comes as the industry faces ballooning content costs and consumers experience significant cost-of-living increases. These changes, coupled with content overload, have caused nearly two-thirds of consumers to tighten their entertainment budgets.
And the ever-growing subscription audiences meant to carry platforms to profitability? They’ve begun to dwindle. In an over-saturated market, subscriptions alone won’t solve streamers’ headaches around growth and profitability. They need to open the spigot on delivering targeted audiences to brands and advertisers eager to reach them.
And yet, this resurrection of the old way is taking a novel turn.
A New Frontier Of Personalized Advertising
The new ad experience is shaping up to look different for a few reasons.
First, subscription-based streaming services are introducing an element of choice to keep or lure back consumers in the form of tiered subscription options: a higher fee to access ad-free content or a lower fee to watch with ads. This optionality comes as research shows ad tolerance has reached an all-time high; nearly two-thirds of consumers now use ad-based tiers.
On top of that, new technology is providing a significantly better understanding of individual consumer preferences.
I liken where we are on this front to a piece of artwork hanging in my home. When you stand close to it, you see hundreds of tiny photos of people. Take a couple steps back and you’ll find that, together, these photos form a hazy image. A few more steps back and that larger image comes into focus: a portrait of Coach K, whose leadership I greatly admire. Those minuscule photos composing his image? They’re all the basketball players he worked with throughout his career—people who shaped him.
As more of our lives have moved online, we’ve brought with us a lot of information about how we live—little snapshots representing different aspects of ourselves. Early on, that information was useful in forming a vague picture of our interests and behaviors. Today, though, between the available quantity of information and advancements in how we process and model data, we’re finally able to better anticipate consumer preferences in meaningful ways—to build a considerably more detailed portrait of consumers’ individual preferences.
This picture helps companies like ours craft personalized, highly relevant entertainment experiences, as well as advertising with the potential to not only land in front of the right audience but to further enhance the entertainment experience by appearing in the right context on the right device.
Newer media platforms are already enabling this type of hyper-personalization. For example, our solution provides the ability to deliver targeted home screen and in-streaming video ads. And since we don’t just watch in our living rooms anymore, this platform will eventually work to deliver ads across numerous devices, conferring serious benefits to advertisers, too. They will no longer have to burn budgets reproducing ads for the unique requirements of different devices and will instead reach a wide range of audiences wherever they’re watching—from the car to the couch—with a single campaign. The information gleaned from users will create a feedback loop to help advertisers further refine their targeting strategies, leading to more personalized consumer experiences.
What Does The Future Hold?
We’re still in the relatively early days of streaming advertising—the Wild West. There’s little standardization across platforms and plenty of varying approaches to ad integration that could keep us from realizing blockbuster ad experiences across every platform.
Potential regulation of the information and AI tools used to produce individualized experiences may also hinder progress. And companies need to ensure that consumers feel the benefits of giving up some privacy—like ads that resonate—are worth it.
Barriers aside, what could a vastly improved ad experience look like in the future?
As you settle in to watch your favorite drama, a commercial begins to run. It’s for something you actually need or want, the production quality is high, and it fits the show’s emotional intensity. In that moment, the ad transcends the product itself, heightening the entertainment experience you were seeking—a personal win, but one for content providers and advertisers, too.
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