Market Insight

Peacock’s advertising strategy focuses on ad-tech innovation to carve out a valuable niche

January 20, 2020  | Subscribers Only


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NBCUniversal (NBCU) revealed the launch date and details of its advertising strategy for Peacock, its upcoming online video streaming service, on 16 January. The investor's presentation outlined a number of the advertising features that NBCU, and parent company Comcast, hope will position Peacock in a valuable niche within the increasingly crowded US subscription video-on-demand (SVOD) market.

Peacock will include advertising in two of the three pricing tiers: (1) a free pricing tier with ad-supported and 7,500 hours of programming; (2) a $4.99 a month tier which will be ad-supported and include 15,000 hours of programming; and (3) a $9.99 a month tier with no advertisements and offering 15,000 hours of programming including more than 400 television series and 600 movies.

The second tier at $4.99 will be available for free to all Xfinity Flex, Comcast Cable, and Cox customers. The company estimates this will garner an install base of 24 million bundled subscribers. NBCU is also looking to build out similar bundled partnerships with other multichannel video programming distributors (MVPDs).

During the presentation, the company highlighted the need for Peacock to offer an attractive ad experience for consumers. A key element of this strategy is Peacock’s planned ad load of five minutes per hour or less. Additionally, Peacock will use new ad technology such as frequency caps (so viewers do not see the same advertisements over and over) to improve the ad experience.

In addition, Peacock will use a range of ad tech products to help brands to improve their advertising engagement within the online video environment. This includes pause ads (ad messages that appear on screen when viewers pause programming), shoppable ads (ad that allows viewers to purchase products by scanning QR codes that appear on TV screens) and binge ads (viewers watch three episodes of a show and the fourth episode will be ad-free, sponsored by an advertiser).  

Peacock will debut for Comcast subscribers on 15 April 2020. The service will then roll-out for non-Comcast subscribers on 15 July. This service roll-out will be completed just before the Tokyo Olympics begin on 24 July. This event is a key plank of NBCU’s TV programming and Olympics programming will also be available on Peacock. The launch schedule is set to capitalize on the Olympics to help drive consumer sign-ups for the new service. 

Our Analysis

With the pursuit of a hybrid business model that includes ad-supported tiers, NBCU is pursuing a different path to a number of leading SVOD players in the US. The newly launched Disney+ and Apple TV+ are already challenging established players like Netflix; alongside the upcoming SVOD by AT&T’s WarnerMedia, HBO Max.

NBCU forecasts that advertising revenue will be the main source of income for Peacock with estimates to hit $6-$7 USD of ARPU by 2024. With a reliance on advertising revenue, NBCU recognizes the need to provide a good ad experience in order to keep viewers using the service. The proposed ad load of five minutes an hour is very attractive in comparison to fifteen minutes per hour on linear television. While Peacock can boast a low ad load, it is not the only AVOD service offering an improved ad load compared to linear TV.  One of its main competitors in the AVOD space, Hulu, currently has an ad load of seven to eight minutes per hour.

By reducing the ad load and the number of times a unique advertisement is seen by viewers using a frequency cap, there is an increased need to generate advertising revenues via improved targeting and other ad tech innovations. Peacock’s range of ad products, such as binge ads are innovations for brands to engage whilst keeping the ad load low. However, these ad products are not unique to Peacock: Hulu had already introduced binge ads and pause ads in 2019.   

NBCU is playing to its strength as an established advertising partner for brands by pursuing an ad-supported path with Peacock. The company is already able to offer an advertising inventory across television, digital and mobile. With the addition of Peacock, this gives NBCU a large and diverse ad inventory to offer to brands. 

NBCU is also using existing parts of the company to test some ad products ahead of the Peacock launch. For example, shoppable ad has already been tested on linear television by NBCU. The company also plans to draw upon the infrastructure built out behind Sky Now TV to support the advertising platform. The European broadcaster Sky, acquired by Comcast in 2019, had already invested in addressable TV technology and offers core cross-functionality. On top of that, Comcast-owned ad tech company, FreeWheel has also been instrumental to unifying NBCU’s linear and digital ad buying. Having access to these capabilities gives Peacock a significant advantage in maximising advertising revenues.  

NBCU is aware of the influx of new direct-to-consumer SVOD services entering the market. Their positioning of Peacock looks to both stay competitive with quality content and to prevent breaching consumer price thresholds. By pursuing an AVOD business model, NBCU is able to differentiate their service by offering a free option to consumers and buy themselves time to build up an originals slate. The AVOD business model puts less pressure on a service hitting subscriber numbers solely to measure if it is successful. NBCU’s past ownership experience with Hulu also gives them advantages in understanding the ins and outs of operating an ad-supported online video business.

In terms of content differentiation, Peacock’s value proposition is strong across reality TV, sports, and news. These three genres of content have not been at the forefront of other top SVOD services. These genres have often been what keeps consumers tied to their traditional pay-TV packages, so if NBCU is able to create a holistic value proposition in these categories, consumers may begin to cut the cord at an even faster rate.

By 2024, NBCU targets to have 30-35 million active accounts and to break even on their upfront investment. Being part of a major TV network gives NBCU the advantage of a compelling library that includes live sports and news; however, this comes at the expense of lack of technological know-how compared to pure online streaming companies like Netflix and Amazon. Hence, NBCU must put in more effort in technical development such as user interface design, video management and interactive experience to win this war.   

 

Geography
USA
Research by Market
Media & Advertising
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