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On streaming devices, here come the ads

Variety has an interesting report this morning that takes a closer look at the sudden proliferation of advertisements on some streaming hardware and services.

The story opens with an anecdote about a recent ad campaign from insurance company Geico where users of Amazon’s Fire TV Stick saw the company’s famous Gecko mascot greeting them when they signed in to a service.

Instead of being asked to sign up for car insurance (in less than 15 minutes, their infectious ad campaigns promise), users were redirected to a screen within Amazon’s Prime Instant Video service where a collection of horror films were suggested to TV viewers.

It’s not the first time advertising has been served up on streaming devices that people thought they owned outright — and it won’t be the last. In fact, Variety predicts the trend will grow over time.

It comes as no surprise that Amazon would tap into advertising as an additional revenue stream — the company has long subsidized the low cost of its gadgets by offering users a serving of commercial messages. Amazon’s line of electronic books and tablets are far cheaper than those offered by rivals Sony (for books), Samsung and Apple (for tablets) as long as customers are willing to receive ads. Those who aren’t simply pay anywhere from $20 to $50 more to remove them.

Not the case with Amazon’s line of streaming devices: Its Fire TV hardware has minimal features to limit ad trafficking and no way outright to remove them. It’s a common complaint among Amazon Fire TV users and tech reviewers: Amazon configures its TV devices to favor its own ecosystem, and it serves up a lot of commercials.

Amazon’s not alone: Rival Roku takes a similar approach. While it is favored by customers for its overall mission of being app agnostic (it doesn’t direct users to any particular service, and among the many consumer choices for streaming devices, it tends to have the most services out of them all), Roku does collect information on viewer habits and then sells that data to advertisers.

A decade ago, when Roku devices first hit the market, the boxes cost around $100 to buy and were sold mainly at electronic retailers like Best Buy and Fry’s. Those early gadgets didn’t serve ads to users out of the box. Now, the cheapest Roku box can be purchased at Walmart, Target and other stores for as low as $30 — sometimes less if they’re on sale. All Roku devices serve ads out of the box, even if a customer never signs up for a service like Netflix or Hulu.

(Similar hardware devices offered by Apple and Nvidia do not provide advertisements out of the box, but those gadgets also tend to cost more money.  Google’s Chromecast does not serve up ads at all, though Google’s popular video streaming service YouTube does carry ads.)

Services have also jumped on the bandwagon of serving up more ads. Hulu is a prime example. At launch, subscribers paid $8 a month to watch past seasons of network TV shows with one or two ads during each break. Today, the number of ads has increased — and nearly equals what TV viewers might find on broadcast networks — but users aren’t complaining much: The company lowered the base price of its ad-free version to $6 a month and offered subscribers the option to watch shows with commercials altogether for $6 more a month.

In recent months, some Hulu users noticed the company started inserting ads whenever a viewer would pause a video mid-stream. This feature rolled out to a handful of users early before being formally announced by the company.

A Hulu executive said the company didn’t want to insert traditional pre-roll ads when a viewer paused a video because it would lead to a bad viewing experience for its 25 million subscribers. The executive said a pre-roll ad could be “jarring” for viewers who expected all audio and video to be in suspense, and advertisers didn’t seem interested in creating an access barrier to content in progress.

But viewers found static ads overlaid on a pause screen acceptable if the ad was both “subtle and relevant.”

So far, Hulu has kept its pause screen ads subtle. But that’s not to say others won’t adapt a more aggressive approach, especially if the content is being offered for free, as is the case on Tubi TV, Pluto TV, Xumo and certain free content offered by Amazon, Walmart’s Vudu and others.  So far, none of them have signaled any interest in moving away from pre-roll or traditional ad breaks, but there is a large appetite for “free,” and if programmers take the same approach to licensing and cost with streaming services as they have for cable companies, “free” may get harder and harder to come by without invasive, intrusive, annoying ads.

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About the Author:

Matthew Keys

Matthew Keys is a nationally-recognized, award-winning journalist who has covered the business of media, technology, radio and television for more than 11 years. He is the publisher of The Desk and contributes to Know Techie, Digital Content Next and StreamTV Insider. He previously worked for Thomson Reuters, the Walt Disney Company, McNaughton Newspapers and Tribune Broadcasting.
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