The haka, the ad and the outrage: has the line between subscription and ad-funded become more defined?

Over the weekend, Sky faced a fresh dose of viewer outrage during a rugby match. However, this time the frustration had nothing to do with a jerky online stream or increased subscription charges.

Instead, the annoyance was derived from the placement of a Hyundai ad after the haka and right before the start of the game.

The outrage eventually made its way to the mainstream news, with Stuff and NZ Herald both covering the viewer response to the ad.

Sky backed down quickly after the news broke, pledging not to run another ad after the haka for the rest of the Lions tour.

An interesting narrative that has emerged from this debacle centres on whether Sky should run ads at all given the subscription fees paid by viewers to access the service.

With free-to-air television, viewers are more tolerant of ads because they recognise someone has to pay for the content.    

Sky has until now benefitted from the privileged position of earning revenue from subscriptions while also selling ads around certain content. In the 2016 financial year, for instance, Sky earned $74 million from advertising, which accounts for around eight percent of the $928 million in revenue earned over the year.

Much has been said and written about how Sky’s business model has come under threat with the introduction of on-demand players such as Netflix and Lightbox, which offer quality content at much more affordable rates.

But in the context of the post-haka ad, the conversation isn’t so much about what content on-demand businesses offer but rather how these newcomers are shifting consumer expectations.

When it comes to on-demand viewing, consumers are increasingly associating paying a subscription with an ad-free experience. Viewers that turn on Netflix, Lightbox or even Sky’s Neon know that their direct debits buy them an ad-free experience.

The music streaming giants Pandora and Spotify go a step further by removing the ads only when people start paying.

These examples have nothing to do with rugby or the haka, but they’re steadily informing what consumers expect when they pay for a service. And these sentiments only become more accentuated the higher the subscription fees become.

Netflix CEO and founder Reed Hastings is acutely aware of this, recently saying he had no intention to introduce ads to the service despite the additional revenue this might introduce.

“We’re really committed to an ad-free experience,” Hastings said while speaking on the Code Conference Stage earlier this year. 

“Google and Facebook are super good at ad-supported eco-systems, and they might eventually be the leaders in ad-supported video… We don’t want to be the ad-supported play, because how are we going to compete in the long-term over 20 to 50 years with Facebook, Google, etcetera…?”

He says Netflix is focused on connecting with its viewers on an emotional level, and that invariably means not annoying them with ads.

Netflix knows what it’s designed to do, and sticks to that however lucrative a short-term opportunity might seem. This is also part of the reason why Hastings has been so reluctant to invest in sports rights, either here or abroad.    

“We’re not trying to meet all needs,” Hastings says.

“Sports are really good in the moment, but the after-life of a show is really small. It’s harder to transform sports over the internet. You can carry it over the internet, but what does that do for you? The internet doesn’t yet add much value to the sports experience.”

Admittedly, Netflix is playing only in the digital realm whereas Sky straddles broadcast and digital. But the expectations of consumers don’t adjust to fit the channel when it comes to these matters. The point being if you’re going to charge someone for any form of entertainment, you need to think twice before interrupting their viewing experience.

The element about this ad that viewers found particularly frustrating was that a rugby match, by virtue of its structure, presents ample opportunity for Sky to earn some ad dollars by incorporating brand messages at halftime when the action pauses.  

As one commenter said: “Fill your boots at halftimes as I am probably heading to the fridge to quench my thirst.”

It is, of course, understandable for Sky to want to capitalise as much as possible on an event that might only happen again in 12 years. But rather than looking for new slots to sneak in ads, Sky could take a few tips from the American approach and turn the advertising at halftime into an event that viewers might even look forward to. Of course, nothing will ever be as elaborate as the Super Bowl, but there is certainly scope for a bit of creativity to be injected into the halftime show to give the audience something to look forward to.

As things stand, Sky retains hundreds of thousands of paying subscribers in New Zealand, many of whom might complain about the service but don’t go quite as far as cancelling their subscriptions. However, if Sky doesn’t keep a close eye on evolving customer expectations, it might give a few the final shove they were waiting for.   

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