Ad-Supported Streaming Tiers: A Win-Win Model

The streaming industry has undergone a seismic shift in recent years, with major platforms like Netflix, Disney+, and Amazon Prime Video embracing ad-supported tiers. These options were introduced to address slowing subscriber growth, rising content costs, and the need for sustainable revenue streams. While these tiers have opened new opportunities for advertisers and ensured the financial viability of streaming platforms, consumer reactions to this shift have been decidedly mixed.

This blog explores why ad-supported streaming tiers are essential for the industry, the advantages they bring to advertisers, and why some consumers remain divided on this new normal.

The Necessity of Ad-Supported Streaming Tier Subscription Services

For years, streaming platforms thrived on a subscription-only model, promising uninterrupted content as their unique selling point. However, as the market matured, several challenges emerged:

  • Subscriber Saturation: In key markets like the U.S., subscriber growth has plateaued, leaving platforms seeking alternative revenue streams. The reality is that all streaming services are fighting over the same customers and it’s not an unlimited pool like once believed.
  • Increased Competition: Free, ad-supported streaming television (deemed FAST) like Pluto, Tubi and Roku have surpassed major services like MAX and Paramount+ in usage. There are over 3,500 FAST channels available and 1/3 of Americans watch at least once a month according to recent studies.
  • Rising Content Costs: The competition to produce high-quality original content has driven up costs significantly. Shows like Netflix’s Stranger Things or Disney+’s The Mandalorian require massive budgets. Plus, the rights to secure existing content have increased in cost due to the increased competition.

By offering ad-supported tiers, streaming platforms have found a way to maintain profitability while attracting a broader audience. These tiers provide an affordable entry point for price-conscious consumers, ensuring that platforms can continue to grow their user bases.

Why Advertisers Benefit from Ad-Supported Streaming Tiers

Advertisers have long sought access to streaming audiences. Before the rollout of ad-supported tiers, platforms like Netflix and Disney+ were essentially closed ecosystems for advertisers. Despite massive audiences and countless hours of viewing time, there were no opportunities for brands to insert themselves into the conversation. For marketers, this represented a significant missed opportunity, and ad-supported tiers have finally opened the door. Here’s why this is a win for brands:

  • Targeted Advertising: Streaming platforms leverage viewer data to deliver highly personalized ads. Unlike traditional TV, where ads are broadcast to broad audiences, streaming ads can be tailored to specific demographics, preferences, and behaviors, resulting in higher engagement rates.
  • High-Quality Content Association: Ads on streaming platforms are placed alongside premium content, which can enhance brand perception. Associating with high-quality shows and movies helps advertisers connect with audiences in a positive context.
  • Engaged Viewership: Streaming viewers are typically more engaged than traditional TV audiences, often watching content intentionally rather than passively. This level of attention makes ads more impactful.

The Divisive Consumer Perspective on Ad-Supported Streaming Tiers

While ad-supported tiers have been a financial success for streaming platforms and a boon for advertisers, the response from consumers has been varied.

Positive Reactions:

  • Affordability: As the number of streaming services has grown, so has the cost of maintaining multiple subscriptions. For many households, the ability to pay less in exchange for a few ads is an appealing compromise. With inflation and rising costs of living, ad-supported tiers offer a way to enjoy premium content without breaking the bank.
  • Access to Premium Content: Ad-supported tiers allow cost-conscious viewers to access the same content libraries as their ad-free counterparts, ensuring they don’t miss out on popular shows and movies.

Negative Reactions:

  • Loss of Ad-Free Experience: Longtime subscribers who originally embraced streaming to escape ads feel betrayed by this shift. For them, the introduction of ads undermines the core appeal of streaming services.
  • Ad Overload: Critics argue that the frequency and duration of ads on these platforms can feel excessive. Social media platforms are a buzz with complaints about repetitive ads, especially in movies that wouldn’t have ads if watched on cable.
  • Perception of Double-Dipping: One of the most common complaints among subscribers is the perceived contradiction of paying a subscription fee and still encountering ads. “If I wanted to sit through commercials, I’d go back to cable,” says one frustrated MAX subscriber on social media.

However, for most, the affordability and accessibility of these ad-supported tiers outweigh the inconvenience of ads. According to a 2024 report, over 70% of the entire U.S. streaming audience now watches content with ads. Furthermore, both Netflix and Amazon Prime recently reported that the majority of their customers now watch via ad-supported tiers.

Balancing Act: The Challenge for Streaming Platforms

Still, streaming platforms must carefully balance their ad strategies to be successful. Key considerations include:

  • Keeping Ad Loads Light: Platforms like Netflix have limited ad time to 4-5 minutes per hour, far less than traditional TV. Amazon Prime will offer movies with limited interruptions and usually a sponsor at the beginning before the show starts. These tactics are perceived much better by consumers and maintaining these light ad loads is critical to avoiding viewer alienation.
  • Improving Relevance: Personalized ads can make advertising feel less intrusive and more like a value-added experience. Hulu offers viewers control over their ads, such as choosing which one to watch or engaging with specific brands.
  • Offering Flexibility: Some platforms are exploring hybrid tiers, where users can pay slightly more for fewer ads or additional perks, catering to different preferences.

The Path Forward

Ad-supported streaming services have reshaped the industry, providing financial stability for platforms and valuable opportunities for advertisers. However, the mixed reactions from consumers highlight the challenges of introducing ads to a space that was once celebrated for being ad-free.

For streaming platforms, the key to long-term success lies in delivering value to all stakeholders—offering affordable options for consumers, effective tools for advertisers, and sustainable growth for the industry. By striking this balance, ad-supported streaming can become a win-win model that benefits everyone in the ecosystem.