The dramatic growth of advertising-free television such as Netflix and Amazon is threatening to eclipse ad-supported TV — creating a Catch-22 situation in which the TV networks are forced to increase the number of ads they run in order to remain as profitable, which in turn drives ad-weary viewers into the arms of ad-free streaming services.
Netflix is leading the fray, with the kind of viewing figures previously only seen on broadcast TV: 40 million subscribers this month watched the stalker drama “You,” and the Sandra Bullock thriller “Bird Box” is expected to pull in more than 80 million viewers.
But the rise of ad-free entertainment programming is hardly a surprise. Viewers are barraged with upwards of 14 minutes per hour of commercials on traditional network shows — and in an era of DVRs and on-demand viewing, ad tolerance is low for audiences used to skipping through a commercial break.
"The threshold has changed as a result of YouTube and all the trends that lead us away from immersive experiences," said Paul Verna, principal analyst at forecasting company eMarketer. “Now the expectation is that every ad is going to be skippable. It creates a psychological effect. All those forces are playing into the decisions by [major networks].”
“Everyone knows there is a problem and wants to solve it before it’s too late," echoed Brian Wieser, who tracks the ad business as a senior analyst for Pivotal Research Group. "It’s like climate change: We’re not going to die tomorrow, but we will end up negatively affecting the environment.”
By his estimates, TV channels carried on average 13.7 minutes of ads per hour in 2018, up from 12.9 minutes in 2013, including the local spots usually sold by regional cable operators or satellite companies. Viacom-owned channels, which include MTV and Nickelodeon, ran as many as 17.1 minutes of ads, including local ad spots, according to Wieser’s analysis.
Measurement firm Nielsen reported that in the past five years, “People Using Television” during prime time dropped from 60 percent to 51 percent. The decline was even more pronounced among 18-to 24-year-olds, dropping from 23.5 percent to 12.7 percent.
But there's no clear solution as yet for ad placement companies.
“We’ve seen the way viewers respond to less commercial time. We probably can’t add any more than what we have,” John Swift, CEO of North American Investment at Omnicom Media Group holdings, which places $18 billion of dollars of advertising per year, told NBC News.
If ad-supported TV companies don’t change their ways, they risk the slow and steady erosion of the entire $79 billion business — which is projected to grow by just 0.5 percent this year, according to an analysis from media agency Group M.
“The number one topic of conversation is keeping the ad-supported industry alive,” said Linda Yaccarino, chair of NBC Universal advertising sales and partnerships. “No one ever argues it is our obligation to improve the viewing experience.”
Earlier this month, NBC Universal announced it would cut commercial time by 20 percent by next year, doubling down on an earlier commitment to reduce commercials by 10 percent in prime time and an attempt to make ad breaks more appealing by running just two ads during a break and longer breaks at the beginning and end of shows.
The NFL has also been encouraging networks to dial back on the amount of “Brought to you by...” sponsorships during games in favor of multi-camera views or other types of commercials. Ratings are up 5 percent versus last season.
Fox cut commercials during its animation block for three weeks last fall, with breaks sponsored by Google, Verizon, and Geico, among others.
Not so long ago, advertisers were putting commercials next to poor-quality user-generated content and reality shows, said David Sable, global chief executive of ad agency Y&R. Now, "the quality of production has gone through the roof, the quality of the storytelling is the best it has ever been in history."
"We all know ad-supported TV is a better play for consumers in the long run," noted Omnicom's Swift. "In order for that to work, brands have to see value if they’re going to continue to pay more for smaller ratings.”
But marketers must up their game too, said Sable. "It’s not about money, but it is about craft and storytelling” he said.
In other words, creative agencies are going to have to compete like it's the Super Bowl every day.