Islands in the stream

“Islands in the stream, that is what we are,” sang Kenny Rogers to Dolly Parton in 1983. Well, the 21st century idea of ‘islands in the stream’ are the ads about to appear on streaming services that, until now, were ad-free. What does this mean for Kiwi brands looking to tap into new audiences, and how are the local operators responding, we discover…

With streaming services pulling viewers away from terrestrial broadcast TV, advertisers, marketers, and their media agencies are struggling to reach the consumers they have previously found easy to influence. The shifting of eyeballs across digital platforms has made it increasingly difficult for advertisers to reach. Subscription-based streamers have until now removed the advertising option for marketers. Many New Zealand viewers who would previously have been watching content on TV 1, 2, Three or Sky have turned to subscription services like Netflix, Neon, Disney+, Apple TV+, Amazon Prime, or Spark Sport. Even YouTube, which has a solid advertising cohort of customers has increasingly attracted subscribers who wish to avoid the irritating interruptions of advertising.

Content has always been king, and with local TV channels not having the budgets afforded the American streamers, they are increasingly turning to reality TV and cheaper content options. 

With the impending merger of TVNZ and RNZ, and Broadcasting Minister, Willie Jackson, stating: “This is going to require a change of culture, particularly from TVNZ, not so much RNZ because I think they get the model,” the writing is on the wall for a less advertising-friendly model at the state broadcaster, which, until now, has been advertisers’ favoured channel. 

“We need them to change their attitude. We need them to understand what we want, which is a cultural change,” is how Jackson put it, in no uncertain terms.

The merger will also have unintended consequences for local competitor Three, now owned by Warner Bros. Discovery, with Senior Vice President Glen Kyne making the point in its submission that the company could exit the country if the restructured New Zealand market was made unviable by new legislation that could upset the level playing field. This would be a tragedy for marketers in New Zealand. 

Added to these problems is the shifting of the younger generation away from television and towards apps such as TikTok. The NZ On Air 2021 ‘Where are the Audiences’ report indicated that TV and radio combined, now only reaches a third of 15- to 39-year-olds on an average day, compared to over 60 percent five years ago. Back in 2020, according to a Colmar Brunton report, YouTube reached 51 percent of children under 14 while TVNZ 1 only reached 16 percent.

Not only is local TV losing viewers to the streamers, but much of the local audience is watching recorded TV and fast-forwarding through the ads, again reducing advertising effectiveness for sceptical marketers.

On top of all these issues comes the news that Netflix has hired Microsoft to build an ad platform for its streaming service, and both Disney+ and Netflix plan to launch new services allowing brands to purchase advertising on their platforms this year. Their advertising product will reduce the subscription fee for those willing to watch ads, something made more appealing, as Netflix recently increased its subscription fees in a time of ‘cost-of-living crisis.’ 

From current projections, it appears a 30 second ad on Netflix is likely to cost about 26 percent more than an equivalent ad on TVNZ+, which would make it 26 percent more expensive than YouTube and over 620 percent more than a linear TV ad. Little is known, so far, of the anticipated costs on Disney+. According to a paper published by dentsu Media, Netflix will only accept high-quality advertising that delivers storytelling that fits the environment.

International experience shows there is likely to be a sizeable shift in advertising budgets being allocated to streaming platforms. A 2021 article in AdAge indicated many advertisers experimenting in the streaming landscape by repurposing their TV commercials, but the “streaming environments offer more opportunities to better target consumers with ad formats that move beyond the traditional commercial break.” 

So, advertising agencies here will be viewing streaming advertising as an opportunity to be more creative. Streaming services have to date offered options that include pause ads (delivered when a viewer hits pause) and binge ads, which deliver more tailored messages to viewers watching multiple episodes of a show in succession.

With hybrid models containing both ad-supported and ad-free offerings becoming the norm, it remains to be seen which will become more popular, and how the ad-supported lower-cost version will impact linear TV.

In a Bain & Company insight written by David Seddon, Bijan White, Laurent Colombani, Miguel Simoes de Melo, and Naomi Alford, in May 2022, the authors contend that, “Bringing digital marketing techniques to linear TV advertising will allow broadcasters to survive and thrive through the next era of television.” They say, “Following in the footsteps of tech giants like Facebook, Google, and YouTube, broadcasters can enable targeting and measure engagement on linear ads. They can deliver more tangible value for advertisers in the form of measurable business outcomes along the marketing funnel, from awareness
to conversion.” 

This is a concern for TVNZ and Three in particular, as Netflix and Disney+ challenge the broadcasters hold on local advertising budgets. We’ve all seen how Google and Facebook have decimated the print advertising industry. This new challenge is of similar magnitude, and for local marketers, is a double-edged sword. On the one hand there are greater opportunities, but on the other, the increasing fragmentation only adds to the confusion, with a further downside of failing to reach a once ad-accepting audience. 

Whether it’s on Netflix, Neon, Amazon Prime, Disney+ or Apple TV+, a generation of viewers are quite happy to pay for content that is free from advertising. In fact, they prefer it.

In the UK, TV viewers are used to an ad-free experience, thanks to the BBC being a state-financed broadcaster. It is unclear whether Jackson and Labour have taken this into consideration in their thrust for a larger state-controlled entity in Aotearoa. Although it appears a mixed model will continue, this is by no means certain, and an ad-free TVNZ/RNZ would drive advertisers into the arms of the streaming platforms.

As viewers become used to ad-free content on streaming platforms, they are becoming less tolerant of long ad-
breaks interrupting their viewing pleasure. There is, however, no equity in viewing. It is easy for the wealthier
to choose channels that allow them to avoid intrusive, boring advertising, but middle New Zealand has limited disposable income. 

International research from Accenture shows that 63 percent of consumers agree that it’s too expensive to pay for all the entertainment subscriptions they want. This number is probably greater in New Zealand, and what this means for marketers, is that those with the most money to spend on brands will be the more difficult to reach.

So how do the numbers pan out? Nielsen research shows there are 2,594, 000 Subscription Video On Demand (SVOD) or PayTV viewers, 14+, in the quarter ending June 2022, 2,256,000 watch Netflix; 1,386,000 are aligned to Sky (849,000 Sky decoder viewers, 537,000 for Neon and 215,000 for Sky Sport Now); 1,246,00 Disney+ viewers; 460,00 Amazon Prime; and 620,000 others, including AppleTV+ and Spark Sport. 

According to Roy Morgan, TVNZ+ has 1.26 million viewers, putting it on par with Disney+. Obviously, some viewers have multiple subscriptions.

There is no doubt that Netflix, plus Sky, and Neon in particular, were impacted when Disney pulled its content from those channels, when it launched Disney+, which appears to be the big mover. Disney has already overtaken Netflix in total streaming subscriptions worldwide.

Speaking to NZ Marketing earlier this year, Jodi O’Donnell, TVNZ’s Commercial Director, made the point that marketers and media planners will need to have a good understanding of different platforms and how content is viewed on each and every one of them. 

“The 30sec creative will always have its place,” she said, “but marketers and media planners will need to consider a mix of formats and executions to generate cut through and connection with audiences. When it comes to streaming, there are so many new ways to reach captivated viewers.”

Recent media hubbub around the clash of live viewing the All Blacks/Japan test with the Black Ferns Wales quarter final and the Black Caps T20 against Sri Lanka, highlighted some of the ways audiences can follow their sporting heroes. 

Sky will tell you satellite delivery remains essential for live sports viewing, where New Zealanders want a reliable and seamless viewing experience, and it’s true despite the introduction of sports streaming services in New Zealand, linear TV has maintained a significantly higher audience share. But many New Zealanders who enjoy a linear experience, also want an improved digital and streaming experience. 

Sky’s offering has evolved to deliver an upgraded and improved Sky Box, SkyNow and Sky Go experience and SparkSport has done well to capture significant audience numbers, with viewers skipping between All Blacks on Sky and Black Ferns on Spark, as well as splitting Rugby League and cricket viewing between the two platforms. 

The streaming competition will continue to amplify in the near to medium term. Warner Bros. Discovery continues to invest in and grow ThreeNow and is increasingly leaning into a digital-first strategy, making content available to audiences outside of traditional primetime viewing.

At the end of the day, viewers will always gravitate to the content they want to watch, regardless of the platform it’s on and the funding model that underpins it. Content is king, and the global giants have huge resources at their disposal. Marketers will need to keep pace if they are to prosper in this rapidly changing environment. 

This article was originally published in the Dec/Jan 2022/23 issue of NZ MarketingClick here to subscribe.

Graham Medcalf

About Graham Medcalf

Graham Medcalf is former Editor of NZ Marketing and regular contributor.

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