Paid streamers are out. Free TV is coming with a vengeance.
As streaming took off, millions of viewers signed up for services like Netflix, attracted by the promise of great, ad-free entertainment. Some predicted that the future of television would shift from cable to ad-free streaming services. Advertisers worried about how to market to people who were spending more and more time in ad-free zones.
Well, that was a long time ago.
Over the past year, viewers have grown fascinated with these streamers’ (cheaper) ad-supported content. But perhaps more importantly, they’re spending more time watching completely free options. YouTube has overtaken Netflix as the top TV streamer, and free ad-supported TV services like Fox’s Tubi and Paramount’s Pluto TV have grown in popularity, offering a wide range of content from old reruns like “The Jeffersons” to new titles like “Scandal.”
“In case you haven’t noticed, everything is expensive these days,” YouTuber Jamie Clement posted online. “A little advertising is not a huge amount for a gift like this. Tubi is awesome.”
But free TV isn’t all that great for entertainment companies that have spent the past few years trying to catch up with Netflix. The idea that everyone will watch TV behind a pay wall — streaming rather than cable — is proving to be a fantasy.
The fundamental problem is that it’s unclear how these free services could support new Hollywood-style programming even if they wanted to.
Television is already facing increasing competition from free social media apps such as TikTok and Instagram, which are primarily viewed on mobile phones. With YouTube making its way onto TV screens and “free ad-supported TV” (FAST) services gaining traction, where does this leave Hollywood?
The big worry in Hollywood is that Peak TV is gone forever, dooming the entertainment giants to have to compete for ever-smaller attention spans. The industry isn’t going to disappear — after all, Netflix is doing just fine, and Disney is a giant.
But being in decline in the entertainment industry is hardly glamorous — just ask the magazine industry.
Paid streaming has business problems
In the early days of television, it was broadcast over the air for free and revenue came from advertising. But with the rise of cable television, pay television became the norm. By 1992, 60% of U.S. households subscribed to cable television.
When streaming first started to take off, driven by Netflix and Hulu, it was mostly paid. Since 2019, that hasn’t changed, even as Disney, Warner and Comcast have launched their own competing apps. To get people to subscribe to these new streamers, entertainment companies have churned out new shows at a record pace, ushering in the era of Peak TV. According to a survey by FX Networks, the Peak TV era will peak at 600 shows in 2022, before declining by 14% in 2023.
But spending on new content wasn’t sustainable. With the exception of Netflix, which has a huge first-mover advantage, none of the streamers are consistently profitable. They made it easy to cancel, and people quit as soon as their favorite shows ended, forcing the companies to increase spending on original content.
As Wall Street grew wary of streaming’s profitability in 2022, entertainment companies curtailed spending on content, creating ad-supported tiers to attract new viewers and revenue streams, and forming bundling partnerships to keep people hooked.
Ad-supported tiers, in particular, have been a bright spot for the industry, allowing streamers to raise prices for ad-free tiers while rolling out cheaper ad-supported versions.
“Consumers are spending less, but rather than hold back, many are using ad-based alternatives to save costs,” Sara Lee, research analyst at Parks Associates, said in the report.
But paid streamers faced competition from others offering even cheaper rates: $0.
More people are watching free TV
In July, YouTube reached a milestone: It became the first streaming TV service to capture more than 10% of total viewership, according to Nielsen. YouTube surpassed Netflix’s 8.4% to become the number one service.
YouTube’s popularity on TV shows that creators’ content can make the jump from mobile phones to the big screen.
Media industry analyst Evan Shapiro sees the rise in free-to-air viewing as a return to the 1990s, when a combination of free-to-air and pay-cable viewing was the norm.
“Free TV usage has always been high and YouTube usage is growing,” he said. “YouTube is the No. 1 channel for viewing on the big screen, with some of its 2.5 billion users on TV.”
Another big success story in free streaming is Tubi, which has become the fastest-growing streamer over the past year, matching Disney+ in viewership share.
Tubi, which launched in 2014 and was acquired by Fox for $440 million in 2020, is one of the oldest and largest free streamers, with 65,000 shows to choose from. It has live linear channels like ABC News and NFL, but most of its viewing is on-demand movies and shows in columns like “Westerns,” “Mysteries,” and “Romance.”
Including Pluto TV and The Roku Channel, the other FAST channels big enough to make Nielsen’s rankings, as well as YouTube, free streaming TV accounted for 14.8% of viewership in July, up from 12.5% a year ago, while paid subscriptions’ share remained roughly flat.
The dirty little secret of the industry is that a certain amount of TV viewing is always passive. In other words, the TV remains running in the background. Many FAST services offer an easier way to watch passively than paid streamers. Some mimic linear TV channels with easy switching, while others offer a variety of news, entertainment, and sports with just a few clicks, no credit card or login required.
“Sometimes you come home and you’re tired and you want content to be served to you,” Jenn Voakes, head of content acquisition and programming at Roku, said of the appeal of FAST. “And then you add the free aspect to it.”
That last point may be obvious, but it can’t be overstated: These services are free. Sure, you won’t get the latest season of “The Bear” or “Wednesday,” but the premium services are all going up in price. More than half (53%) of FAST users said they’ve cut back on their paid streaming services in favor of watching free, ad-supported TV, according to a Horowitz Research survey.
According to Hub Entertainment Research, people’s tolerance for advertising has also increased over the past few years.
In the coming months, tech and traditional media will be battling it out for free TV.
Going forward, the major companies that are already leading the free TV market are likely to continue to expand their market share.
YouTube is the clear leader in user-generated content, which is important to younger audiences, helping to make it a must-have service.
Amazon also has an advantage with its free service, Freevee, which gets priority from its Fire TV operating system for smart TVs. Like YouTube, Freevee is part of a larger entertainment ecosystem.
Similarly, Roku has gained platform dominance with its free streamer, The Roku Channel, which is ahead of Max, Peacock, and Paramount+ in Nielsen rankings and behind Tubi in FAST. Roku has created different content zones, such as home, cooking, and sports, and introduced personalization features to help viewers find what they’re looking for. It also strives to keep up with the latest trends by airing born-in-digital programming like “Hot Ones” and MrBeast channels.
The biggest bets from the legacy media giants in the free space are the FAST services, starting with Tubi, which has been gaining market share thanks to its vast library and has also developed a handful of originals (the company claims that a quarter of Tubi viewers watch at least one original per month), and which prides itself on keeping up with audience needs by monitoring social media trends.
“Social viewership will surpass TV viewership this year, which is a sign we’re paying close attention to,” said Adam Lewinsohn, Tubi’s chief creative officer.
Paramount (Pluto TV) and Comcast (Xumo) have their own FAST services, WBD has announced it will launch its own FAST service, and it may only be a matter of time before Disney and Netflix follow suit. Still, with the number of FAST channels approaching 2,000, there is broad industry agreement that channel cuts are inevitable.
Some are innovating with their programming: Fremantle, which distributes 24 FAST channels anchored by shows like “Three’s Company” and “Baywatch,” is exploring ways to make older game shows like “Family Feud” and “The Price is Right” interactive, said Laura Florence, senior vice president of global fast channels at Fremantle.
In the battle for freebies, will the winner matter to Hollywood?
But the big question hanging over the industry is whether this rapid growth really matters to Hollywood’s established companies.
These services allow entertainment companies to squeeze more revenue out of their content libraries, expand into countries where paid subscriptions are less common, and potentially get people to sign up for paid services. For example, 43% of FAST users told Horowitz that they signed up for a paid streaming service in order to continue watching shows they started watching on a FAST channel.
That sounds great in theory.
But if users are spending half their viewing time watching free TV, does that mean they’ll also spend half as much money on streaming services? A recent study by Parks Associates and JPMorgan found that the average number of streaming services people pay for is declining as subscription fatigue sets in.
Though the FAST service is growing in popularity, its business model may not be able to support the big-ticket original productions that are Hollywood’s lifeblood.
Paramount recently revealed that Pluto, which launched in 2013, has been profitable for several years, but its biggest FAST, Fox’s Tubi, which followed a year later, has yet to turn a profit.
CNBC pegs Roku’s full-year content spending at “more than $1 billion” in 2022, a far cry from the $17 billion Netflix plans to spend this year. Roku’s most ambitious film to date, the Weird Al biopic, reportedly cost just $12 million to make. (Netflix routinely spends more than $100 million on a film.) Tubi’s net investments for FY2024 (of which content is a part) were in the mid-$200 million range.
Television is already losing viewers to social media platforms: Emarketer predicts that YouTube surpassed traditional TV in viewership last year, and social media is expected to follow suit next year.
Free streaming may seem like a way for Hollywood to win back viewers.
But even if traditional media companies are able to steal streaming viewers away from tech giants like YouTube, Roku, and Amazon, they’ll need to figure out how to keep paid streaming services growing. Otherwise, even if they win the battle for free TV, it’s unclear what they’ll actually gain from it.
