This time next year, we may well be watching advertisements on Netflix. The company’s announcement to offer a lower-priced, advertising-supported tier on its streaming platform came as no surprise to me. In 2018, it was predicted that the platform would eventually offer advertisements. And the reason for this is quite simple: the market for new subscribers is too competitive, and the race for great content is too expensive. The market for premium content on over-the-top (OTT) streaming platforms is expanding rapidly and consumers now have lots of options. They can choose between watching advertisements to access free content or paying more to watch advertising-free content. While subscription-based OTT streaming grew significantly during the pandemic, it seems like advertising-supported OTT streaming is the way forward.

In a subscription-based model, the effort to attract more users by producing more high-quality, original content entails high costs, which are directly passed on to the users through a hike in the subscription fees. This can lead to an erosion of subscribers, as witnessed in several developed markets.

We are seeing in price-sensitive regions like Southeast Asia that OTT platforms that are faring better than others are the ones that offer consumers both subscription-based and advertising-supported options. A recent study estimates there are approximately 200 million Southeast Asian users who stream 9.7 billion hours of OTT content every month. Southeast Asian consumers also have a healthy appetite for advertising-supported OTT content, with almost 89 per cent of users willing to watch two or more advertisements in exchange for an hour of free content. India, too, is an advertising dominant market. Elara Capital estimates that almost 63 per cent of India’s $1.7 billion OTT market is accounted for by advertising video-on-demand (AVOD) revenues.

Both in India and abroad, Gen Z and young millennials (ages 16 through 34) are the top audience segments for OTT platforms. These young audiences are often heavy users, consuming several hours of content per day. They are also trendsetters, and their tastes dictate the top trending OTT genres and content. To build long-term brand loyalties, both OTT players and advertisers will need to design and deliver campaigns in ways that resonate with these cohorts.

Considering that India has a fragmented OTT market, marketers need to leverage data-driven media buying tools to give consumers fewer, yet more relevant ads. The fact that Netflix and Disney are moving towards an advertising-supported model is proof that OTT has established itself as a credible advertising channel. With more advertising-supported OTT models, we can expect a notable shift in advertising trends, where brands will prioritize advertising in premium content platforms over user-generated channels.

Meanwhile, the core value exchange of the internet, where users can watch free content in exchange for relevant advertising, will still remain. This is no different from how content has been monetized for decades.

As viewers binge-watch their favourite series on smart TVs or mobile devices, a large percentage of them will likely pay for it by watching advertising. The more relevant the advertising is to the viewer, the more valuable it is to the advertiser and the OTT platform, and the more it can be used to fund great new content. For brands, advertisers, and streaming service providers, the game will be all about how quickly they can pivot to where the eyeballs are moving.