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Straight Talk Media & Entertainment

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Since the early commercialization of the Web in the 1990s, many have predicted the demise of TV advertising. The argument ran that the one-to-one, two-way interactivity of personalized Internet ads would soon prove more appealing to both consumers and advertisers than intrusive one-way, one-to-many broadcast TV spots.

Fast forward to 2015 and TV-advertising spend is forecast to continue to grow until at least 2020 – and the industry is worried about a threat much closer to home. According to respondents to Ovum’s ongoing 2015 Future of TV survey, the biggest disruptive threat to TV advertising over the next three years will come from ad-free TV services such as Netflix.

This response speaks to a much deeper fear: people just don’t like TV ads. And subscription-based video-on-demand (SVOD) services such as Netflix allow people to watch TV for hours without encountering a single one.

Netflix has even predicted a future of TV with no more commercials. Marketers will “need to find a different place to advertise,” chief product officer Neil Hunt told a US conference audience last year. I’m skeptical of such predictions – especially since they describe a world where a suspiciously Netflix-like SVOD business model dominates to the exclusion of all others, both new and old.

Still, broadcasters should be concerned. Many rely on revenues from both TV ads and from licensing their shows to SVOD providers. Those licensing fees were once a bonus – a way to make extra cash long after the TV ads had been sold. But if enough people prefer watching those shows ad-free via Netflix to cause viewing of ad-funded TV channels to fall, then advertisers may well want to pay less or avoid those ads.

“Almost ad-free” strategies involving product placement, branded content, and other subtle ploys could help ease the transition. A-B InBev and Samsung, for example, brokered deals with House of Cards production company Media Rights Capital for their drinks and devices to appear in the third season of the Netflix original series, according to Ad Age.

The good news for content providers reliant on ad-funding is that brands will always want to be where the audiences are – even if that means accepting a more low-key role in a seemingly ad-free TV environment.

To take part in Ovum’s 2015 Future of TV survey, please click here.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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