As streaming services become more expensive, consumers are increasingly turning to free content to fill their entertainment diets.
Free, ad-supported streaming platforms such as Roku Channel (ROKU), Fox affiliate Tubi (FOX) and Paramount’s Pluto TV (PARA) have seen steady increases in viewership in recent years. This is a surprising development, given the lack of original content and the heavy advertising load on these channels, the so-called FAST channels.
FAST – which stands for free ad-supported streaming television – offers both linear and on-demand content in a single viewing experience that relies on advertising to generate revenue.
The rise of FAST comes at a time when virtually all major streaming services have increased their prices in recent months, including Paramount, Netflix (NFLX), Max (WBD) and Amazon (AMZN).
“It’s different to be 100% free,” Tubi CEO Anjali Sud said in April on the Ringer podcast “The Town With Matthew Belloni.”
“We don’t ask you to subscribe to an ad tier or a subscription tier. We don’t try to upsell you. The fragmentation and friction is reduced.”
In other words, what appeals to users is accessibility. Julie Clark, director of marketing insights firm TransUnion, described the model as a “sleeping giant” in the ever-evolving media landscape.
“FAST is easy, it’s accessible,” she told Yahoo Finance. “You can get the basics you need, like the news and weather, but there’s also older programming available and they’re starting to get better distribution deals there as well.”
Simply put, FAST is the closest you can get to cable without actually paying for it. Not to mention that certain FAST providers, such as Roku Channel and Samsung’s TV Plus, are also distributed across their respective smart TV devices, further expanding their presence for users.
“There’s a catalog of content that’s available within the FAST environment that you can enjoy throughout the day,” Clark said. “And given the recent price sensitivity, I think we’ll continue to see that grow.”
The content on FAST channels can include all kinds of programs, from TV movies and old shows from traditional studios to low-budget, unscripted series, short videos, documentaries and sports.
You still won’t get to see the new season of “Bridgerton” or the latest episode of “The Bear.” But for price-conscious consumers, that may not be so important.
Tubi, which Fox acquired for $440 million in 2020, led the network’s year-over-year growth after posting a nearly 5% monthly viewership increase in May, according to Nielsen. It captured a platform-best 1.8% of total TV usage for the month as a record 1 million viewers tuned in.
Even more impressive? The average audience for May came in higher than traditional streamers Disney+, Peacock, Paramount+ and Max, Nielsen confirmed.
“A lot of people confuse Tubi as some kind of passive FAST channel that just runs in the background of someone’s household. That’s not the case,” Fox CFO Steven Tomsic said last month at a MoffettNathanson conference. “90% of Tubi consumption is where it’s a real lean-forward experience. People have consciously chosen the title and see through it.”
Tubi has experimented with original content, but it’s all about the library. Tubi has more than 240,000 movies and TV series on its platform, most of which are licensed. The audience is made up of 63% “cord cutters” or “cord nevers”, while 40% are not subscribed to other traditional streamers.
Meanwhile, the Roku Channel, which has also been doing some original programming, saw a 1.3% month-over-month increase in viewership, leading the FAST provider to a platform-best 1.5% TV share — the only company to climb in the rankings for May, taking 10th place overall.
Competitors have noticed this. Bloomberg recently reported that Netflix is considering its own free ad-supported tier in certain markets such as Europe and Asia. According to the report, it will not be rolling out a free version in the US as it has already heavily penetrated its subscriber base in the country.
But the FAST business model remains unproven. Tubi, for example, has not yet made a profit. The long-term prospects also remain murky, given the expected renewed acceleration of mergers and acquisitions within the media industry as a whole.
“I’m probably a little more cautious than others,” Macquarie analyst Tim Nollen told Yahoo Finance. He noted that FAST providers must take a different strategic approach than other streamers, given their lack of premium or exclusive content.
“A lack of premium content means they have to be effective at using ad technology to target the users they do have,” Nollen says. “It’s a large audience, but it may not be a particularly engaged audience. I think they will be successful in using technology to target those users. But it may be in a slightly different way.”
Companies like Paramount, Fox and Roku don’t disclose the financials of their respective FAST channels, despite consistently citing them as growth engines in earnings reports.
For example, Paramount credited Pluto TV for its double-digit ad revenue growth in the first quarter. Roku and Fox did the same.
The Rise of Ads on Streaming
Advertising on connected TV, which refers to devices and platforms that are connected to the internet, has increased dramatically in recent years. And it is not only FAST channels that are benefiting from the transition.
Companies like Netflix, Disney and, most recently, Amazon have entered the ad-supported streaming market in recent years. That means more inventory and also more opportunities to better target and monetize consumers through technology.
“Advertisers have many opportunities to test, learn and use advanced targeting that was previously only available within traditional digital advertising,” Clark told Yahoo Finance. “That’s definitely driving some of the growth in FAST and other ad-supported services.”
MoffettNathanson predicted that total advertising on over-the-top streaming services will grow 33% this year, compared to a 17% increase in 2023, as more consumers opt for ad-based streaming services.
There is a comfort level [in] that value exchange,” Clark said. “Even younger consumers are getting used to ads on YouTube, so it’s a natural progression.”
Ads are also easier to digest when you know you’re paying less (or nothing at all) to view them.
“Ultimately, people value freedom of choice. And we’ve always been used to watching ads, whether it’s on a cable network or on YouTube,” says Vikrant Mathur, co-founder of Future Today, a company that specializes in advertising ads. -supported connected TV solutions.
“But now we have a choice. And if I can save money, I might be more willing to make that compromise.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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