The Era of Ad-Free Streaming is Here

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How it started
Streaming once offered a refreshing escape from cable, allowing viewers to watch what they wanted, when they wanted, without enduring lengthy commercial breaks. The pricing was also a major draw; for instance, Netflix launched its standalone streaming service in 2010 at just $7.99 per month. Amazon’s Prime Video followed suit, providing ad-free streaming as part of its Prime membership. Hulu was a bit different, offering ad-supported TV shows and movies for free, later introducing a $7.99 per month Hulu Plus subscription with limited ads.

The allure of ad-free streaming was so strong that when new services emerged, most opted for an ad-free model from the start. Disney Plus debuted in 2019 at $6.99 per month, while Apple TV launched at $4.99 per month, and HBO Max came in at $14.99 per month. There were exceptions, like Paramount Plus, which started with ads at $4.99 per month, and NBCUniversal’s Peacock, which offered some free content alongside a $4.99 per month ad-supported tier.

As the streaming market matured and viewers settled into their preferred services, executives quickly realized that simply adding subscribers in a crowded market wouldn’t be enough to turn a profit. Netflix experienced its first subscriber loss in over a decade in 2022, while its competitors struggled to achieve profitability. The streaming industry needed a new strategy to sustain the billions spent on content.

How it’s going
Amid ongoing price increases, major streaming platforms have gradually introduced advertising to enhance profitability. HBO Max launched a cheaper, ad-supported tier in 2021, and even Netflix, which once vowed to remain ad-free, rolled out its ad-supported plan in 2022. Disney Plus followed suit, and Amazon Prime Video automatically placed subscribers into an ad-supported tier, requiring an additional fee for ad-free viewing.

With nearly all major streaming services now featuring ads, the price difference between ad-supported and ad-free tiers has widened significantly. Streaming platforms often target ad-free subscriptions for the largest price hikes, with Netflix recently increasing its standard and premium plans by $2, while the ad-supported tier saw a smaller $1 increase. The cost for ad-free Netflix is now $19.99 per month (or $26.99 for 4K HDR), more than double its original $7.99 per month price.

HBO Max also raised its ad-free subscription by $2 last year, bringing it to $18.49 per month for the standard plan and $22.99 for premium, a notable jump from its initial $14.99 per month. Prime Video doubled its ad-free price earlier this year and restricted 4K streaming to a pricier $4.99 per month add-on to the $14.99 Prime membership. Disney Plus, which once offered ad-free access for $6.99 per month, now charges $18.99 for the same privilege.

The rationale behind this shift is clear: streaming executives have reported higher average revenue per user (ARPU) from ad-supported tiers, benefiting from both subscription fees and ad sales. In January, Netflix projected its advertising revenue would reach $1.5 billion in 2025, a small portion of its total $45.2 billion revenue. However, Netflix’s ad tier is expanding, now reaching over 250 million viewers monthly, with expectations for ad revenue to double to $3 billion this year.

As ad-free plans become pricier, more viewers are opting for ad-supported tiers. Research indicates that nearly half of subscribers in the U.S. using streaming services with cheaper ad-supported options have chosen those plans.

What happens next
Apple TV stands out as the only major streaming service without an ad-supported subscription, though its future in this regard remains uncertain. Currently, Apple runs ads during live broadcasts, such as Major League Soccer games. While there’s speculation about Apple expanding ads to its entire service, the company has downplayed these rumors, with its services head stating, “I don’t want to say no forever,” but “there are no plans.” Apple TV has also increased its prices, now sitting at $12.99 per month.

Meanwhile, Netflix is exploring new ways to integrate ads, including allowing brands to use AI to blend their ads with Netflix content. Other platforms are experimenting with various ad formats, such as displaying ads on profile selection menus or during paused screens. Unfortunately, budget-conscious viewers often have no choice but to endure ads, many of which can be repetitive or poorly timed.

This has led some viewers to seek alternatives, such as the ad-supported but free YouTube, which remains Netflix’s biggest competitor, and free ad-supported streaming TV (FAST) services like Tubi, Pluto, and The Roku Channel. Some services are attempting to strike a balance between affordability and ad-free streaming, with the Roku-owned Howdy offering over 10,000 hours of content without commercials for $2.99 per month.

While these alternatives may provide temporary relief from rising costs, they often lack the premium titles that have become synonymous with streaming. Accessing shows and movies without interruptions has never been more expensive, undermining the very appeal that initially attracted viewers to streaming.

By the way
* Fox’s plans to acquire Roku could benefit both companies: Roku might gain access to Fox’s library, while Fox could leverage Roku’s extensive user data.
* Rising subscription costs have prompted some viewers to resort to pirating cable through unauthorized streaming devices.
* As Netflix recruits top talent from YouTube, the platform is countering by launching exclusive shows featuring big names like Trevor Noah and Alex Cooper.

Read this
* Janko Roettgers, who writes the Lowpass newsletter, explores why Apple TV is becoming the new HBO — and it’s not just because it remains ad-free for now.
* How much would you pay to eliminate ads? A survey from Consumer Reports found that 3 in 10 subscribers to ad-supported tiers would pay less than $5 more to go ad-free. It also reveals interesting insights about viewers’ annoyance with ads and their preferred times for commercials.
* Fortune discusses how streaming fatigue is leading more people, especially Gen Z, to subscribe to and then cancel streaming services after watching specific shows.