Tech companies pick a tough time for their ad break

Netflix and Disney executives plan to support ads on their streaming services. Video game giants such as Sony and Microsoft are also considering it, according to Business Insider. It makes sense, since inflation is affecting entertainment spending. The question is whether the advertising demand supports it.

In 2019, subscription services ruled everything from wine to razors. That is far away. Consumers are tightening their belts: Britons canceled 1.5 million subscriptions to streaming services in the first quarter, according to Kantar.

An obvious solution is to post ads. A subscription to Disney’s Hulu costs $7 a month, compared to $13 without ads. And rivals are making it work: First-quarter sales for Paramount Global’s Pluto TV rose 51% year-on-year. At Sony and Microsoft, the immediate goal is not to charge a fee, but to build an ad-supported ecosystem that attracts the best free game creators.

In any case, the risk is that the demand for advertising decreases. A recession could affect marketing budgets. Morgan Stanley lowered last week the rating of the agencies Publicis and WPP. Snap also cut its sales forecast for the second quarter.

But the race for ads has some clear winners: the tech firms that match advertisers with publishers. They include $25 billion Trade Desk, which is already associated with Comcast’s Paramount+ and Sky, and $2 billion Criteo.

Of course, there is always the option that Netflix and company will avoid resorting to them in favor of simpler strategies: a large flat fee for an advertiser to sponsor all of Stranger Things, for example. If anything, cash-strapped consumers are likely to flock to cut-price, advertising-supported services. The tech giants just need advertisers to stay online.