The Future of Streaming is Ads

    The streaming services with big names had a great run. Netflix, Hulu and other streaming services like Apple TV Plus and Disney Plus have revolutionized the movie and show industry in the past decade. With just a few dollars a month (or less), we can now access more entertainment than ever before.

    It seems that the streaming revolution is hitting a brick wall. Most services are increasing more slowly after they have reached the majority of their potential audience. They’re spending tens and tens billions on content each year, but the returns are diminishing. Investors no longer believe that streaming is a lucrative business, and streamers are looking for ways to earn money. It seems that the golden age of big-spending, high-flying streaming is over.

    There’s something new exploding in streaming. Free platforms with ads are currently the fastest growing part of streaming. Services like Tubi Pluto and Roku Channel have begun to establish themselves as major players. These platforms have quietly been gathering millions of users and large content libraries for many years. As users search for cheaper entertainment options and studios seek better ways to monetize their content, these platforms are starting to make noise.

    The future of television is free. It has ads and involves channel-switching. The old TV business is a good analogy. It’s kind of the whole point.


    We’re actually talking about two things when we mention free streaming services. Both are accompanied by silly acronyms. FAST stands for Free Ad Supported Streaming TV. These are always-on, programmed streaming channels which run 24/7. They are similar to broadcast channels. The second option is AVOD (Advertising-Based Video On Demand), which is a library that you can access whenever you want. (Netflix, Max, and similar services are SVOD or Subscription Video on Demand.) We’ll combine free streaming and FAST for our purposes.

    Free streaming has a very appealing name: It’s free. A growing number of streaming subscribers are saying that they spend more than they would like on their subscriptions. And a Deloitte study last fall revealed that 44% of respondents have canceled at lease one paid service within the past six months. Deloitte found that 59% of users would be willing to watch ads for an hour to get a cheaper or free subscription.

    In the past six months, 44 percent of people have cancelled at least one service.

    You’ll see more and more SVODs start to experiment with ads. Netflix has discovered that it makes more money per user with its ad supported plan — $6.99 a monthly, with a few advertisements an hour — than from pure subscriptions. Disney Plus also offers an ad supported plan. Peacock and Max, as well as the rest of industry, have a similar plan. It seems that ads are the future for the streaming market.

    There is something special about a truly free streaming service. Free streamers can think differently about their products because they don’t need to convince you to pay $8, $10 or even 20 dollars every month. In many cases they end up somewhere better. Tubi, Pluto and other companies make money each time you watch a video. Their only goal is to get you watching as much as you can.

    Adam Lewinson is the chief content officer of Tubi. “My number one priority is engagement,” he says. Since we are ad supported, we do not have a double revenue stream. Scott Reich, SVP for content at Pluto TV says that they don’t accept credit cards and never will. They make money by allowing viewers to consume content. “I do not have to pay for anything. If I don’t enjoy it, I just leave.” It’s up to us as a service to give you a reason to return.

    This changes how free streaming apps work in two wonderful ways. Since these platforms are motivated to have you watch something as soon as possible, they remove a lot UI clutter that you find in many streaming apps. You don’t have to log in or scroll past the banners of new shows that you’re not interested in. Just hit play. Pluto takes it to the extreme. When you load the Pluto app, the last FAST channel that you watched will automatically start playing. This is similar to the old TV, where you would turn on the television and it would start playing something.

    The free streamers need to make their content visible, so they often work with search engines and aggregators that help users navigate the streaming world. The free services, whether you use JustWatch, Reelgood, or simply Google “how-to-stream” and your favorite show are well represented. If the title that you are looking for is available on any of these services, how do you find it? It’s not necessary to sign up for a trial or enter a password in order to watch. Just press play. You’ll have to watch ads, but you will sacrifice some of the on-demand flexibility. It’s so much quicker.

    These platforms also place a high value on personalization. It doesn’t matter what you watch, as long as it’s on. So sending you down a Gordon Ramsay rabbit-hole or hooking you up with all 11,000,000 episodes of Project Runway is a pretty simple choice. Lewinson also says that it is a great way to attract viewers who don’t want the same Cultural Moment shows as you see all over. Lewinson says that part of his job is to use algorithms and merchandising to deliver the right content to the viewer. He wants to learn what the viewer’s interests are and then provide them with more.

    Pluto’s Reich says that big-name movies and shows tend to attract people, but they don’t stay. He says that the “single series” or franchise channels are what drives the majority of his viewers. “The Star Treks and CSI of the World, Three’s Company. This drives a great deal of viewing. People come back to watch classic TV, and more niche channels, such as your food, home, lifestyle channels.

    Reich believes Pluto’s real strength is in curating all of that. Spotify is a good example of how it approaches playlists. It has the same songs as everyone else but remixes them and presents them better to keep the users engaged. Pluto’s channels are no different. He says that a team consisting of 50 programmers curates these channels and the guides for these channels. “And although the audience may not know it, they do feel it.

    Playing hits

    The flip side of this strategy is that free streaming services don’t generate huge hits. Spending a fortune to promote Success just to get a couple of million tweets about it each week is not a great business, but it will bring HBO more creators and more subscribers.

    Brand loyalty is also a result of big hits. The Roku Channel is no longer the place to go to find out what new original series have just been released. Instead, viewers will open Netflix or HBO to check what’s available. All free services are, in a way, interchangeable. It’s all about the library size and whether you can find the title that you want. FAST offers hundreds of channels, some of which are accessible on multiple platforms. There are many users of the free streaming services, but there are not as much fans.

    All free services are interchangeable in a certain way, but only to the extent of the library size.

    Not all free streaming services are chasing hits. Reich said Pluto was playing a completely different game, in part, because it is owned by Viacom. Viacom also owns Paramount Plus which does enough hit-hunting for itself. He says that “we have a bazillion studios, and a billion channels who make original programming each day.” We can tap into this and figure out ways to play off one another. For example, you could catch up with Pluto, while we throw back to Paramount Plus or one of the traditional networks.

    Tubi is Fox Entertainment’s streaming service. Lewinson says that his buying power was lower five years ago. He mentions some recent Tubi originals, including The Stepmother,about an evil mother; Dead Hot,starring Vanessa Hudgens, and a documentary from Vice,which recently launched with a segment about Elon Musk. Does it have any Emmy or Oscar bait? Most likely not. Lewinson, however, says that it is a significant leap in ambition and there will be more to come.

    Amazon’s Freevee is where the first real cultural moment of free streaming seems to be forming. It’s called jury duty and it is a mockumentary style show about a fake court case where everyone except the main character know that the entire thing is fake. The show was a TikTok hit and generated a great deal of online discussion. It also sparked many “what is Freevee, and how can I watch it?” stories. Lee Eisenberg, a producer at The Daily Beast, said that “almost [every] network and studio passed.” “The only place to step up was Freevee… It’s very satisfying that everyone passed on something which then turned out so special.”

    The jury duty will change Freevee’s fortunes in a variety of ways, but it has certainly put the service at the forefront. Google users searched for “Freevee”, twice as often as ever, the weekend following the first episode’s release. This includes when Freevee was first launched, as a rebranding of IMDb TV. App Annie data shows that Freevee cracked the top 75 iOS App Store charts the same weekend. A week before, it wasn’t even in the top 200.

    There’s no doubt that hits help. Even without the jury duty bump the free streaming flywheel seems to be spinning faster and faster. People are looking to save money and find new ways to watch things. Advertising has been the mainstay of TV, but now it’s moving to digital platforms. According to a recent report by the research firm Omdia, revenue from FAST channels grew 20 times between 2022 and 2019 — and it is expected to triple before 2027.

    Free streaming services are in a good position to increase their share of movie and show revenue over time. You don’t need to be convinced to pay to watch their content. They don’t even need to convince you sign up. You just need to be able to watch something, then they can sell you ads to go with it. This has been the television business for more than a century and is coming back with a vengeance.

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