Ad-Supported Streaming Services Find New Footing in Hollywood
Amazon, NBCUniversal and Viacom all recently bet on free premium content — with commercials.
The past five years in Hollywood have been defined by a Netflix-driven infatuation with the subscription video business, but a series of moves suggests that ad-supported viewing is poised for a comeback.
On Jan. 22, Viacom agreed to pay $340 million for Pluto TV, the free streaming startup that mimics the lean-back experience of television. Also this month, Amazon launched the no-cost Freedive as a complement to its Prime Video subscription, and NBCUniversal detailed plans for a primarily ad-supported direct-to-consumer offering. YouTube also has added free movies and TV shows to its lineup. Meanwhile, sources tell The Hollywood Reporter that Sony Crackle, which has been considering selling a stake, has held talks with potential strategic partners including Pop, the cable network jointly owned by CBS and Lionsgate.
With U.S. video ad spending expected to hit $50 billion by 2022, per eMarketer, there's a valid incentive for media businesses to not abandon the advertising that long has been television's bread and butter. But there's another market force also fueling this trend: concern that consumers are reaching their limit when it comes to monthly subscription fees. On average, a person subscribes to around three streaming services, according to Nielsen. The number goes up to around four for viewers interested in family movie franchises. In a market already dominated by the trio of Netflix, Amazon and Hulu, that means that it could be hard for new offers from the likes of Disney and WarnerMedia to break through.
"There is clearly subscription fatigue," says Farhad Massoudi, the CEO of Tubi, which offers free streaming of more than 9,000 movies and TV shows. "The idea of an average household subscribing to Netflix and Amazon and Hulu and HBO and Disney+ and YouTube and AT&T — it's ludicrous."
Pluto and Tubi both launched in 2014, as Netflix was beginning to unleash its originals. Despite the growing subscription video options for consumers, Roku around the same time began to notice an uptick in searches for the word "free" on its connected TV devices. This led the company to launch its own channel for ad-supported content at the end of 2017. "I don't think any consumer will tell you that they love advertising, but when you ask if they'd accept advertising in exchange for free or discounted content, the answer is predominantly yes," says Scott Rosenberg, GM of Roku's platform business, who adds that the ad-supported market will benefit from a decrease in ad loads and technology that makes advertising more personalized to the individual viewer.
For years, the concept of free, digitally distributed content has been synonymous with the user-generated programming that has proliferated on platforms like YouTube. That has changed with this new crop of ad-supported products that have focused on licensing films and TV shows from the major studios. At first, Pluto mostly licensed digital shortform content but began to strike deals for not only content libraries but also live news programming.
"We put a huge focus on longer-form programming in the form of news, TV shows and movies because if you're going to have a mainstream service with a wide variety of categories and over 100 channels, and those channels are going to be rich and not just rerun the same old stuff over and over again, you need a lot of content," says Pluto CEO Tom Ryan. "It requires lots of deals with major media partners in order to power that." YouTube, too, has begun to supplement its UGC and original commissioned fare with a small, rotating selection of free, ad-supported films like Four Weddings and a Funeral and Get Shorty.
Now, these services also are benefiting from the battle that Netflix and Hulu have waged to land exclusive subscription streaming rights. The studios have grown accustomed to the ancillary revenue that licensing to streamers provides them but aren't as threatened by the ad-supported platforms, which usually don't ask for exclusive rights and are more willing to disclose their data. Owning such a distribution platform with 12 million monthly uniques was a selling point in Viacom's deal to acquire Pluto. "We strategically made a decision going back a couple of years to really curtail the wholesale licensing of our library product into the SVOD universe," says CFO Wade Davis. "We’re going to use our library to further solidify and accelerate the lead that Pluto already has."
The ad-supported model, meanwhile, has made the economics of producing premium original programming difficult, so most free services (Crackle excluded) have opted out of joining the scripted television boom. "The idea that you can fund a TV show at a lower cost that all of a sudden will do incredibly well is really asking for winning a lottery ticket," says Massoudi.
But as free video offerings proliferate, they may find that their biggest hurdle isn't much different from that of their subscription counterparts: breaking through. "There is an overwhelming amount of choice," notes eMarketer analyst Paul Verna. "I know a lot of people who want to cut the cord but don't know where to begin."
A version of this story also appears in the Jan. 24 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.