Ad-free subscription: How much of a threat to advertising?

The number of YouTube Premium users globally surpassed 100 million in February of this year. Though the platform noted that these included people on free trials, that’s still, if not a drop, a bathtub in the ocean, given that the video streaming platform boasts a monthly active user count of over 2.7 billion people. To put it in context, a million seconds is about 10 days; a billion seconds is roughly 32 years.

However, even though FAST channels and AVOD are rapidly growing segments, there is also a steady trickle of largely affluent consumers moving towards ad-free tiers. However, as they barricade themselves from much of the constant barrage of advertising on content platforms, how could this migration impact those premium advertisers specifically targeting the well-heeled?

Future Forward

Debarshi Chakravorti, VP - Business Communication and Planning, Interactive Avenues, says the rise of ad-free subscriptions reflects a shift in consumer values, prioritizing uninterrupted, high-quality experiences and a willingness to pay for such services.

He says, “Two key factors driving the shift towards ad-free subscriptions are the perceived value of uninterrupted, focused experiences and growing concerns about data privacy. Consumers are increasingly willing to pay a premium for ad-free platforms, viewing it as an investment for a more enjoyable and personalized user experience. Additionally, heightened awareness of data collection practices in ad-supported models has fuelled a preference for ad-free subscriptions, which minimize data sharing and targeted advertising.”

While ad-free subscriptions are not an immediate threat to the advertising industry, they represent a growing trend that advertisers need to be aware of and adapt to.

Sajal Gupta, Chief Executive at Kiaos Marketing, says currently the viewers in the premium tier are small and not affecting the advertising ecosystem significantly, even as platforms are gaining from enhanced subscription revenue.   

“In the long term, the business models of OTTs are still evolving as we have seen SVOD OTTs like Prime Video and Netflix opening to advertising tiers in the global markets, driven by revenue pressures to support the high costs of procurement and production of content.  Directionally one sees a mixed model being rolled out.  While in the case of YouTube the Premium tier is built with the objective of ad avoidance and attempts to make up the loss of revenue through subscription revenue, the AVOD OTTs are an extension of the TV business of their holding groups and continue to follow the established advertising model.”

“Sure, ad-free subscriptions on platforms like YouTube Premium appeal to affluent consumers but remain a minority in the digital landscape. Advertisers' concerns are countered by the continued persistence of ad-supported platforms,” says Garima Vishnoi, Head - Media, Alliances & Partnerships, White Rivers Media, adding that despite potential stabilisation in SVOD (Subscription-based Video on Demand) growth, free AVOD (Advertisement-based Video on Demand) platforms will maintain substantial viewership, ensuring advertisers reach a wide audience.

“Advertisers must adopt targeted strategies in today's media landscape to engage viewers who bypass ads. High-quality content on OTT platforms, with personalised ad formats like skippable and non-skippable options, enhances viewer engagement and recall, akin to associating your brand with a hit show for deeper connections with affluent audiences,” she says.

Industry experts agree that the loss of premium eyeballs through the ad free tiers is an area which can grow into a major concern in the future, and there are expectations that at that time premium tier prices will be considerably higher to make up for the loss of advertising revenue. 

Affluence & Influence

“Advertisers will be concerned with the loss of the affluent premium tiers audiences and will be looking at alternate avenues to reach out the same audience.  This is where streaming platforms are investing in data clean rooms to further enhance the premium audiences with not only its own content consumption behaviour but also from trusted data third party sources to make a holistic audience cohort to reach out on the open internet through their DSPs partners,” says Gupta.

 It has been reported that Disney's clean room usage increased 570% in fiscal year 2023 compared with fiscal 2022.  All major streaming platforms internationally Paramount, NBC Universal, and Roku, in addition to Disney, have made significant investments in data clean rooms and DSP integrations.

Indeed, according to Parth Arora,Co-Founder and Chief Operating Officer, The Salt Inc, ad-free subscriptions are not limiting audience reach, they are rather increasing consumer touchpoints for relevant conversations. “It is an absolute indication of how the world of content is moving from interruption marketing to permission marketing. Branded content integrations on these platforms are a great way to spark conversations through meaningful narratives.”

While affluent audiences are undoubtedly distancing themselves from exposure to pushy advertising, but much like other audience segments, affluent audiences are also continuously expanding their exposure to content they relate to.

“Content consumption needs of Indian users are rapidly increasing every day. Indian users love stories. No matter who your users are, they are watching videos, online, all the time,” says Arora, adding, that on a fundamental level, brands now have more opportunities to indulge in emotionally aligned, storytelling-based content that these users are consuming, content that fosters deeper connections through meaningful narratives and tactful product placements.

“And technically, apart from conventional advertising touchpoints, brands have the opportunity to influence these affluent users, through conversational content, via more than 25 digital touchpoints across the consumer's journey,” he says.

Ad-free subscriptions are reshaping the advertising landscape, with Chakravorti saying, “The growing demand for ad-free subscriptions presents a unique opportunity for advertisers to redefine their approach. By collaborating with content platforms like streaming services and podcasts, brands can leverage sponsorships, native advertising, or product placements to seamlessly integrate into premium content. This strategy ensures brand visibility among a receptive, affluent audience while respecting their preference for uninterrupted experiences.”