OTT Advertising Snapshot Q1 2022: Netflix & Paramount+ Pave Their Own Path

In 1946, studio executive Darryl F. Zanuck said, “Television won’t be able to hold on to any market it captures after the first six months…People will soon get tired of staring at a plywood box every night.”

He was proven wrong, as TV and related technology, like OTT (over-the-top/streaming services), have become extremely popular. In 2022, 1.88 billion people are expected to use OTT services like Netflix, Peacock, Discovery+, and Paramount+.

With such a large audience, OTT has become attractive to brands. In 2021, OTT ad spending reached $1.3 billion. However, some OTT providers have recently reported a decrease in subscribers, leading to new investments in advertising and efforts to stand out from rising competition.

Here are key storylines from Q1 data on OTT advertising.

Netflix Fights Back Against the Competition (and a Declining Subscriber Base) with Print Ads

Netflix has long dominated the OTT world, but recently reported it lost 2,000 subscribers in Q1—the first time in a decade—and expects to lose another 2 million in Q2 due to price hikes, show cancellations, and the possibility of ads.

Previously, Netflix could weather such storms due to its market dominance, but the abundance of OTT services now makes it harder to gain market share.

Despite declining numbers, Netflix still has over 220 million paying subscribers. However, competition from Amazon Prime Video, Hulu, and others is forcing Netflix to fight back for the first time.

One way Netflix is responding is with ads, and their Q1 strategy is unconventional. In Q1, Netflix spent 43% of its ad dollars on Print and 37% on TV, making it the biggest spender on traditional formats.

Why does this matter? Netflix is more popular with younger generations, so a traditional-first ad strategy that leans on Print seems to miss the mark, as younger people prefer digital devices. However, Netflix may be targeting older generations with Print ads, as only 44% of its subscribers are above 65, while 75% are between 18 and 34.

Ultimately, only future financial reports will show if this was the right way to allocate ad dollars.

Digital is coming

Despite a big investment in Print and TV, Netflix spent 20% of its budget in Q1 on Digital. Of those digital dollars, 65% went to Video, 23% to Display, and 7% to Facebook. The remaining 5% went to Native, OTT, Podcasts, and Snapchat.

The most notable change from Q1 2021 was a decrease in Facebook ads, which previously represented 30% of its budget. This is interesting, as Facebook is the social platform of choice for older generations.

Netflix appears to be banking on Video, in combination with Print and TV, to help it rebound. While it’s strange to see Netflix in this position, its strategy is hard to question. Rekindling its subscriber base will likely require investment in content, price stabilization, and a renewed commitment to staying free of ads (which is looking less likely).

Come One, Come All

OTT accounts for just 3% of total digital ad spend per month. This may be due to OTT’s history of being dominated by subscription services with no ads or light ad loads, and its relatively unproven capabilities compared to more mature alternatives.

Still, during Q1, nearly 1,400 companies, including Berkshire Hathaway, Capital One, and Microsoft, bought OTT ads for more than 3,000 brands, spending over $369 million.

Six categories—Pharma, Restaurant/Bar, Auto, Tech, Retail, Media & Entertainment, and Finance—accounted for 72% of ad spending. These have been the top spenders for the past three quarters.

The variety of advertisers investing in OTT demonstrates its widespread appeal, which bodes well for OTT services as they try to attract more advertising budgets.

Paramount+: The OTT Service of Choice for People Who Love Ads

Longevity of OTT services depends on more than pricing and content; ad loads play a role too. More ads mean more revenue, but also a worse experience for subscribers. Most OTT services take a similar approach to ad loads:

• ​Discovery+: 4.6 Ads Per Show and 7.0 Ads Per Hour
• ​HBO Max: 4.1 Ads Per Show and 7.4 Ads Per Hour
• ​Hulu: 7.1 Ads Per Show and 11.1 Ads Per Hour
• ​Peacock: 5.4 Ads Per Show and 9.5 Ads Per Hour

Paramount+ is different:

• ​Paramount+: 18.6 Ads Per Show and 26.8 Ads Per Hour

The difference is surprising given the competition for subscribers. A poor experience with many ads could turn people away, but Paramount+ may be trying to attract more advertisers and improve sales.

Despite the high ad load, Paramount+ is growing, adding almost 7 million subscribers in Q1. This suggests that OTT subscribers may tolerate more ads in exchange for better content and lower prices. Paramount+’s approach could signal to other services that more ads are acceptable, potentially leading to higher ad loads in the future.

OTT Advertising: A Huge Opportunity for All

OTT accounting for 3% of total advertising spend should not be seen as a weakness. There was a time when advertisers were just starting with Facebook. OTT advertising is here to stay.

For OTT services, ads will continue to be a tool for growth. For brands, ads are a way to reach a growing audience with immersive experiences on the big screen. In the future, OTT’s share of ad spending is likely to increase.

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