Ad-supported Content Had Plenty of Opportunity Because … It’s Free

Content Insider #875 – Deep, Good

“For there must always, always be a Zorro. And some day, when he’s needed, we will see him again… on his fearsome steed Tornado, riding like the wind, his sword blazing in the sun… leaping, jumping, swinging through the air… fighting like a lion.” – Alejandro Murrieta, “The Mask of Zorro,” TriStar Pictures, 1998

O.K., … color us amazed.

WBD raised prices on their ad-free streaming service … again!

Who knew Zaslav’s stuff was better than the other guys’ s**t?

Of course, his move was closely followed by the other guys’ because …

Oh sure, none of them were profitable except for that d*** Netflix that has figured out how to understand and use subscriber data. They know just when to add, remove, add new/different shows/movies that bubble up when you understand that the viewers’ data means.

When that didn’t seem to work, the streamers made another bold move and introduced … ads.

It turns out people don’t mind ads – except for two friends of ours – as long as there are only a few in an hour (4 min vs 20 min), the ads don’t repeat again and again and again and they’re sorta relevant to us (but not too relevant because that’s stalking).

Yeah, those are tough calls which is why Sheri Redstone named three guys to replace one guy to run Paramount until she could figure out what to do with the company.

Since we like to save money and a few minutes of ads allow us to get to the bathroom and back before the excitement continues, we switched from ad-free to ad-supported for our favorite streamers.

Yes, we could have saved even more money when all of the wired/wireless providers introduced the next big advance in streaming … the bundle.

Nope. Couldn’t do it.

Been there, done that, not going to do it again.

Just not ready for another endless contract with Verizon, AT&T, Comcast (Xfinity), Spectrum or players to be named.

The streamers and service folks’ priorities of advertising and bundles were obviously driven by a desire to turn a profit.

But they were also driven by the desire to reduce – hopefully stop – churn.

Sure, we went with Disney+’s ad-supported bundle along with our other two; but still, if we decided to bail it wouldn’t be a hassle and besides, it seems to have something for everyone in the family.

That means more of us can find something we want so everyone is interested in keeping the service and that minimizes/eliminates churn.

It’s true, Netflix has always had exceptionally low subscriber churn; but even co-CEO Ted Sarandos feels a little twinge every time a household drops them, even though he is pretty sure they will be back … soon.

Still, it’s lost income and although they’re profitable, it hurts and they’d really like to keep you on the service.

Yes, even Greg Peters, his partner in running the global service, has suggested that keeping folks on their ad tier is going to be more lucrative – long term – than their ad-free tier.

Consumers agree because their ad-supported service has grown much more rapidly than their ad-free service.

You may have noticed that the services only bump up the cost of their ad-free service because the ad-supported service has it’s own way of generating added income for them and probably a lot more money.

Even with only a few minutes of ads per hour, they not only keep subscribers, they also make money from the marketers who want to reach certain segments of the viewing public with very targeted ads.

And they aren’t alone.

Have you seen the size and quality of smart TV you can get for $500 and less?

How do they do that?

Listen to the sales pitch… “fast, simple connection and we’ll also help you get started with a bundle of streaming shows/movies that are absolutely free.”

That’s right; LG, Samsung, Vizio, Hisense and others have invested a lot of money in connectivity and content navigation technology, so you’ll use their service to pick and watch your entertainment.

It’s also the reason Walmart picked up Vizio this year for $2.3B. Which is why when we’re asked about a new big screen set, we simply say, “ABC – Anything But Connected TV.”

We’re not paranoid (much), but we also know they’d like to automatically connect/engage with consumers to sell them more of their stuff.

Smart – Flat screen manufacturers have found an easy way to become a major gatekeeper for advertising to home entertainment owners with easy-to-connect, easy-to-use TVs. The low price and enhanced capabilities give them a leg up on understanding consumers.

O.K., we bought the big screen (you probably will too), but we connected it without hooking up to “their” environment.

Yeah, it’s a little more work but it gives us a slight sense of freedom knowing they don’t know what we’re watching, when we’re watching it and what other kind of stuff we have in our home.

We realize it’s a small victory; but in today’s information sharing world, it’s rather nice to give our data to a service that will entertain us.

In a very real way, home entertainment is coming full circle. It’s the same but different in very important ways.

The sleepers are the growing number of FAST (free ad-supported television) services like Tubi, Pluto and a steady roll-out of new services that have just about everything … except for the new shows/movies you usually turn to first because of a personal or review recommendation.

The entertainment segment has gotten so big that Amiga publishes their own tracking report – Quarterly Global FAST Report – and Nielsen and other tracking services have been following/reporting on viewership.

Gracenote Video Data reported earlier this year that there are more than 1,900 FAST channels (1,300 plus in the Americas) with more on the way.

Global, Growing – The number of unique free streaming services are gaining popularity around the world and the number of services available are streadily growing.

The services offer a broad range of films – blockbusters, old favorites and indies – as well as robust selections of yesterday’s shows – reality, scripted, unscripted – as well as popular series.

In addition, if you miss things like local news and shows about the goings on in your area, one or more of the FAST services will have their streaming channel.

In our opinion, it’s more than a little like your old pay TV bundle without the heavy cost. We think that helps local channels to continue to keep viewers–even when they dump the bundle.

Of course, that also makes us wonder why Paramount and Peacock are bleeding red ink in an attempt to build their own subscription and ad-free service unless ego stands in the way of making the decision that seems to

be a smart move for shareholders and viewers.

But what the h*** do we know!

Our two current favorites are Tubi and Pluto but hey, they’re free so you can add them all to your set and surf to see what piques your interest.

We’ve found shows/movies from many years ago we never knew existed so for us … they’re new!

Not on Netflix – Tubi, Fox’s free streaming service, has promoted its service as similar to but different from Netflix by offering content folks can’t find on Netflix but would probably find even more interesting because it’s free.

Tubi, which is owned by Fox, has more than 78M active monthly users with a lot of horror and thriller material, Black entertainment, Spanish-language and kids content focusing on a younger, more diverse audience.

As with all FAST services, they’re light on original content but have produced about 200 original projects over the past two years.

They even have some favorite movies that were on Netflix or Max (a while back) and you just might be able to catch them on Tubi.

All Markets – Following the acquisition of Pluto TV, Viacom offers shows/movies in all three segments of home entertainment – pay TV bundle, subscription and free streaming.

Pluto, which is owned by Viacom which also owns Paramount, spans four continents in more than 35 markets and has about 90M active users.

The service has a good selection of movies and shows but really shines on live TV streaming – TV Land Drama, BET Her, MTV Jersey Shore, VH1 I Love Reality and lots more.

They’ve recently been beefing up their movie offerings which include some exciting earlier produced genre projects we’ve found more than a little “interesting.”

Yes, the FAST market is growing with an estimated 40 percent of the viewers who are not paid streamer subscribers. We think it means that people:

Like free stuff
Like, or will tolerate, a reasonable number (3-4 per hour) of ads

Familiarity – A number of FAST services provide an EPG (electronic programming guide) similar to yesterday’s pay TV services as well as surfing search for shows/movies you might be interested in watching. They are finally beefing up their recommendation engines to simplify and speed your search for personalized viewing.

Unlike your standard paid/subsidized streaming service, the FAST channels listing looks an awful lot like the cable/satellite bundle you left behind … but different.

Both on-demand and scheduled programming is shown to provide you with the best of both worlds.

The one problem is … it ain’t fast!

But they’re working on it.

Now that they have flushed out a robust library of near new, fresh shows/movies and regularly scheduled programs, they’re focusing on strengthening the robustness of their recommendation engines.

With a much more robust and consistent viewer base, they are beefing up their search and discovery algorithms so when you sign in for something to watch … BAM! it’s recommending stuff you will probably want to watch.

The free services are continually rolling out/testing new channels to reach broad and narrow segments of the viewing public.

It’s an opportunity to squeeze more money (profits) and extend content shelf life from old shows, movies and TV series including those that weren’t picked up by subscription services.

The biggest problem for the content owner is to believe that if they get their projects on a free service, viewers will come.

They also need a strategic distribution plan to draw eyeballs.

The concept of build it and they will come only worked for Kevin Costner in Field of Dreams.

You need to also draw attention to your show/movie because projects that don’t get audience attention will be replaced by video stories that attract an audience and that doesn’t happen by accident or blind luck.

That’s probably why people often select shows after random channel surfing.

Yeah, this is a cutthroat business.

But on the positive side, free services are benefiting from subscription overload.

FAST Growth – Many of the free ad-supported streamers feature both linear and random selection of shows/movies all at no cost (except for a few minutes of ads) and many households are limiting the number of continuing subscriptions while adding free streaming services.

Deloitte found that 19 percent of consumers have switched from paid subscription to free services.

According to Omdia, the UK has more than 48 percent of home content folks watching free channels weekly followed by the US at 46 percent and Brazil at 36 percent.

The UK now has 21 percent of video users watching FAST channels weekly, following in the footsteps of the US (46 percent ) and Brazil (36 percent).

Earlier this year, The Nielsen report indicated that Tubi made up 1.7 percent of all TV viewing in the US–just below Disney +. And Pluto surpassed one percent of all TV viewing.

As a result, advertising has begun to increase with the free services as they continue to monetize their content.

The growth in interest has occurred because advertisers have begun to realize that reaching a volume audience is less important than reaching and influencing a focused set of interested viewers.

Ad Popularity – Advertisers are following consumers to the new and increasingly popular FAST streaming services as they shift advertising dollars from cable and broadcast promotional investments.

The free ad-supported television revenue is projected to reach $16.5B by 2029, up 117 percent over last year with most of the growth coming from the shrinking cable/broadcast market.

Led by Tubi and Pluto, the US will experience the fastest growth with slightly more than 39 percent of the global ad-supported market.

The other $10B will be shared by the other global market segments.

The free streaming services are just beginning to become a major segment of the streaming content market, offering opportunities for both content creators and studios to attract new and profitable viewers. The services also provide marketers a fresh and unique approach to very selectively tap into new and potentially very profitable market segments.

The FAST market is just heating up and getting interesting.

Perhaps the best way to explain it is to repeat Alejandro Murrieta’s quote when he said, “All that shooting guns, racing around on horses – gives me a frightful headache. It’s hardly the work of a gentleman.”

Moving into the new market is going to be both exciting and challenging, filled with a lot of uncertainty.

But there will be plenty of rewards for those that can deliver what people want to watch … for free.

Andy Marken – andy@markencom.com – is an author of more than 800 articles on management, marketing, communications, industry trends in media & entertainment, consumer electronics, software, and applications. An internationally recognized marketing/communications consultant with a broad range of technical and industry expertise especially in storage, storage management and film/video production fields; he has an extended range of relationships with business, industry trade press, online media, and industry analysts/consultants.