Can Free Ad-Supported Streaming TV Beat Pay TV?
BlogAug 09, 2022
New data from media industry analysts says that traditional Pay-TV providers in the United States, including market leaders like Comcast, AT&T, and Dish Network, lost a total of 5 million subscribers per year between 2019 and 2021, with another 5 million projected to cancel their subscriptions in 2022.
It’s all part of the cord-cutting trend, a shift in consumer preferences from Pay TV to OTT video streaming services that has seen 50+ million Americans cancel their cable and satellite television subscriptions since 2012.
In the early days subscription-based video-on-demand (SVOD) platforms like Netflix and Hulu had just entered the market with a lower-cost alternative to Pay TV, and the emergence of ad-funded platforms like YouTube gave audiences unprecedented access to free content.
But as cord-cutting continues in 2022, there’s a fast-growing OTT business model that could be even more disruptive to the traditional Pay TV business model: Free Ad-Supported Streaming TV, also known as FAST.
In this week’s blog, we’ll explore this latest OTT trend. We dive into the ins and outs of the FAST streaming model, why FAST platforms are continuing to attract a growing audience, whether free ad-supported streaming can beat traditional TV, and how content owners can start monetizing their assets on FAST platforms.
What is Free Ad-Supported Streaming TV?
Free Ad-Supported Streaming Television (FAST) is an OTT content distribution business model that allows audiences to stream linear television content for free over an Internet connection. FAST video platforms are free streaming services that earn revenue by serving advertisements as audiences consume their content.
While ad-based video on demand (AVOD) allows audiences to access television and video content from a library, FAST services stream content in linear channels that are more similar to traditional TV.
Paramount’s Pluto TV is one example of a quickly-growing FAST platform.
FAST service providers acquire video content for their platforms by purchasing it, or by entering into licensing agreements with content owners. Content licensing agreements give the FAST service provider rights to stream television or video content in exchange for a flat licensing fee or a share of advertising revenue.
Media companies of any size can monetize their OTT content by licensing it to a FAST service provider, though some large media production and distribution companies have developed or acquired their own FAST video platforms to better monetize both new and legacy media assets.
Why Do Audiences Love FAST?
FAST Streaming is Free
In the post-pandemic world, high inflation rates are putting the squeeze on household budgets in America, causing a noticeable increase in cord-cutting.
But while cable TV subscribers are paying hundreds of dollars every month for services, FAST platforms offer a similar viewing experience with no monthly fees (except for maintaining an Internet connection).
Fewer Ads than Pay TV
A study from Deloitte found that too much advertising is pushing consumers away from traditional cable and satellite TV onto other platforms. So, how many ads does it take to frustrate audiences and kill engagement on your television platform?
According to the study, 8 minutes of ads per hour is the sweet spot while 16 minutes of ads per hour will trigger most audiences to stop watching. On cable TV, some channels are delivering 20 minutes of advertisements per hour – it’s too much! On a FAST platform, it’s more common to see 2-5 minutes of ads per hour.
FAST Services are Convenient to Watch
Traditional Pay-TV requires a cabled connection to watch, so subscribers can only access their services when they are at home. Meanwhile, FAST streaming platforms can be accessed on any device with an Internet connection, including a mobile phone, laptop, or a tablet computer.
In fact, analysts estimate that there are now 500 million connected devices in American households that can be used to watch TV, a number that includes more than 100 million Connected TV or Smart TVs that support access to FAST and other web-based video streaming services, plus nearly 300 million mobile phones. The accessibility of FAST platforms means that viewers can tune in from just about anywhere.
Access to Niche, Branded, and Original Content
FAST service providers are seeking to broaden their appeal for audiences by acquiring niche, nostalgic, and branded content to stream on their platforms. That includes old movies, television shows, and cartoons, niche sports, and entire FAST channels dedicated to niche interests like home decor, true crime, nature, and even the supernatural.
We’re also seeing big media companies develop FAST Originals: brand new television shows with production value and genuine star power, purpose-made for FAST streaming distribution.
Growing Platform Diversity
The landscape of FAST content distributors is continuing to widen, giving audiences a wider range of options for accessing free linear TV in the FAST model. Popular platforms now include Peacock and Xumo (both owned by Comcast), Samsung TV+, the Roku Channel, Freevee (Amazon’s reboot of IMDB TV), PlutoTV (owned by ViacomCBS), and Tubi (owned by Fox).
For audiences, more FAST platforms means more unique and niche FAST channels, and a greater variety of streaming content to choose from.
Can FAST Replace Traditional Pay TV?
With the cord-cutting trend continuing to pick up steam and the growth and proliferation of FAST services, content owners are wondering whether FAST could replace traditional Pay TV as the most popular business model for distributing video content in a linear format.
Here’s what you need to know about the increasing competition between FAST and Pay TV:
Pay TV Earns 60X More Than FAST
Despite a ten-year trend of declining viewership, Pay TV continues to out-earn competing content distribution models by a significant margin. While all FAST services in the United States generated an estimated $2.6 billion in ad revenue during 2021, traditional Pay TV services earned $69.9 billion through advertising and another $85 billion from subscription revenue.
Free ad-supported streaming video services are projected to generate $6.1 billion annually by the year 2025, but it will likely take multiple decades for FAST service providers to start generating more revenue than traditional Pay TV – if it ever happens at all.
FAST Platforms are Attracting Bigger Audiences
In 2022, FAST platforms are experiencing exponential growth and attracting bigger audiences than ever before. FAST platform Tubi TV announced in Q1 of 2022 that it had 51 million monthly active users – up from 33 million in Q4 2020.
Then there’s Pluto TV, the FAST platform that went from 12 million monthly active users in 2019 to 64.4 million monthly active users today. For reference, the number of cable television subscribers in the United States peaked in the year 2014 at 100.5 million and is now at 74 million.
FAST Platforms See Low Revenue Per Viewer
Based on the above, we can see that FAST services generate substantially less revenue than traditional Pay TV despite having comparable or even larger audiences. This fact reveals the biggest weakness of the FAST business model today: low Average Revenue Per User (ARPU).
While the typical cable package costs $100-$200/month, and the average SVOD subscriber spends $75/month across multiple SVOD streaming services (e.g. Disney+, Paramount+, Netflix, HBO Max, Amazon Prime Video, etc.), leading FAST service Pluto TV recently reported a monthly ARPU of just $2.54.
A low ARPU is normal for emerging streaming platforms where building a large viewership is prioritized much more highly than figuring out monetization. But to truly compete with SVOD services and Pay TV in the long run, FAST streaming services will eventually need to generate more revenue on a per-user basis.
FAST Platforms Will Grow Revenue by Optimizing Advertisements
FAST platforms are generating buzz and attracting a wide audience, but they’ll need to increase monthly ARPU to successfully compete against Pay TV providers that already earn much more revenue – both overall, and on a per-user basis.
For FAST providers in 2022, the easiest way to increase monthly ARPU is to start leveraging big data from their media to improve and optimize the targeting and delivery of advertisements. As ad targeting improves, placements become more valuable, conversions increase, and FAST platforms can charge advertisers more money for the same ad placements.
Mainstream Content and Live Events Will Stay on Pay TV
The relatively low ARPU on FAST streaming platforms makes it likely that mainstream TV shows and live events will continue to appear primarily on Pay TV where they historically attract a large viewership and generate reliable advertising revenue.
Professional sports leagues like the NFL and MLB have established partnerships and agreements with linear TV broadcasters worth billions of dollars, so it seems unlikely they’ll be moving to FAST in the near future. Live TV shows are also likely to stick around on Pay TV.
FAST Will Grow, But Pay TV Won’t Disappear
While it’s true that free streaming services are growing rapidly and Pay TV subscriptions are declining in 2022, it is far too soon to announce that FAST is replacing Pay TV.
With millions of subscribers, high ARPU, and strong revenue numbers, Pay TV will continue to exist as a highly profitable business model into the foreseeable future. At the same time, large media companies are entering the streaming marketplace and hoping that new FAST or SVOD subscribers can replace the ones they’re losing in linear TV.
FAST streaming platforms will continue to develop and acquire video content, refine their advertising models, and expand their audiences to enhance their appeal for advertisers and grow revenue.
Manage FAST Distribution Revenue with Revedia Digital
With the Revedia Digital platform from SymphonyAI Media, content owners monetizing their assets on FAST services can aggregate content, audience, and financial data from multiple platforms, auto-normalize the data with help from artificial intelligence, then run analytics to support use cases that range from revenue optimization to license agreement management and churn prevention.