Move over, paid streaming services — free TV is getting its revenge.
As streaming services have exploded, millions of viewers have signed up for Netflix and other services, lured by the promise of great entertainment without commercials. Forecasters say the future of TV is shifting from cable to ad-free streaming services. Advertisers are worried about how they will market to people who are increasingly spending time in ad-free zones.
Yes, that was then.
Over the past year, viewers have fallen in love with the (cheaper) ad-free tiers of these streamers. But perhaps more importantly, they’re spending more time watching completely free options. YouTube has taken over as the top TV streamer, edging out Netflix. And free, ad-supported TV services like Fox’s Tubi and Paramount’s Pluto TV, where people can watch everything from old reruns like “The Jeffersons” to new titles like “Scandal,” have taken off.
“In case you haven’t noticed, everything is expensive these days,” YouTuber Jamie Clement wrote on his account. “Some of the ads are a dime a dozen for such a prize. Tubi is great.”
But free TV hasn’t been so great for entertainment companies that have spent the past few years trying to catch up to Netflix. The idea that everyone would watch TV behind a paid service — just through a streaming service instead of cable — has turned out to be a mirage.
The fundamental problem: It’s unclear how these free services could support new Hollywood-style programming even if they wanted to.
TV now has to compete with free social media apps like TikTok and Instagram, which are mostly used on mobile phones. Now, with YouTube making its way onto TV screens and “free TV with ads” (FAST) services on the rise, what about Hollywood?
The biggest fear in Hollywood is that Peak TV will be gone forever, and entertainment giants will be doomed to fight for ever-smaller shares of attention. The industry is not going away. After all, Netflix is doing well, and Disney is a giant.
But occupying a lower position in the entertainment world is not glamorous. Just ask the magazine industry.
Paid streaming has a business problem
When TV first appeared, it was over-the-air and free, with advertising revenue. However, the advent of cable made pay TV commonplace. By 1992, 60% of American households had cable TV.
When streaming services first started to become popular, powered by Netflix and Hulu, they were mostly paid services. But that persisted as Disney, Warner, and Comcast launched their own apps to compete, starting in 2019. To entice people to subscribe to these new streaming services, entertainment companies are churning out new shows at a record pace, giving rise to the era of Peak TV, which peaked in 2022 with 600 shows before declining 14% in 2023, according to research by FX Networks.
But spending on new content is unsustainable. Aside from Netflix, which has a huge first-mover advantage, no streaming service has consistently been profitable. They make it easy to cancel, which people do quickly when their favorite shows end, forcing companies to spend more money on original content.
Wall Street is worried about the profitability of streaming services in 2022, and entertainment companies are reining in content spending. They’re creating ad-supported tiers to gain new viewers and revenue streams. They’re also forming bundled partnerships to try to keep people subscribed.
Ad-supported tiers, in particular, have been a bright spot for the industry. They allow streamers to raise prices on their ad-free tiers while launching cheaper, ad-supported versions.
“Consumers are spending less money, but rather than not getting it, many are using ad-based alternatives to save money,” said Sarah Lee, research analyst at Parks Associates, in a report.
However, paid streamers face competition from other players offering a cheaper rate: $0.
People are increasingly watching free TV
In July, YouTube hit a milestone: According to Nielsen, it became the first streaming TV service to surpass 10% of total viewership. YouTube ranked first with 10.4%, surpassing Netflix’s 8.4%.
The rise of YouTube on TV has shown that content creators can move from mobile to the big screen.
Media industry analyst Evan Shapiro views the rise of free-to-air viewing as a return to the ’90s, when a mix of free-to-air and pay-cable viewing was the norm.
“Free TV has always been a big hit, and it’s increasingly on YouTube,” he said. “It’s the No. 1 channel on the big screen, and about 2.5 billion people use it on TV.”
Another big success story in free streaming services is Tubi, which became the fastest-growing streaming service last year and has already matched Disney+ in terms of audience share.
Started in 2014 and acquired by Fox in 2020 for $440 million, Tubi is one of the oldest and largest free streaming services, with 65,000 shows to choose from. While it has live and linear channels like ABC News and NFL, the bulk of its offerings are movies and on-demand shows, which are listed in rows like “Western,” “Mystery,” and “Romance.”
Add Pluto TV and The Roku Channel, another FAST big enough to show up in the Nielsen ratings, plus YouTube, and free streaming TV accounted for 14.8% of total viewers in July, up from 12.5% a year earlier. Meanwhile, the share of paid subscriptions was essentially flat.
The industry’s dirty little secret is that a lot of TV viewing is passive. In other words, it’s left running in the background. Many FAST services offer a simpler way to watch passively than paid streaming services. Some replicate linear TV channels that are easy to turn on, or offer a variety of news, entertainment, and sports with just a few clicks — no credit card or login required.
“Sometimes you just get home, and you’re exhausted, and you want to be served content,” said Jenn Vaux, head of content acquisition and programming at Roku, of FAST’s appeal. “Then you add in the free aspect.”
That last part may seem obvious, but it’s hard to overstate. The service is free. Sure, you won’t get the latest season of “The Bear” or “Wednesday,” but paid services are all getting more expensive. Horowitz Research found that more than half (53%) of FAST users say they’ve cut back on their paid streaming services now that they’re watching free, ad-supported TV.
Public tolerance for advertising has also increased in recent years, according to Hub Entertainment Research.
Tech media and legacy media will be fighting over free TV in the coming months
Going forward, the major players that have excelled in free-to-air TV will likely continue to gain market share.
YouTube is a clear leader for user-generated content, which is important to younger audiences, and has helped make it a must-have service.
Amazon also has an advantage with its free service, Freevee, because it gets priority from Fire TV, the company’s smart TV operating system. Like YouTube, it’s also part of a larger entertainment ecosystem.
Roku also has a platform advantage with its free streaming service, The Roku Channel. It beats Max, Peacock and Paramount+ in the Nielsen ratings, and is second only to Tubi in FAST. Roku has created content zones like home, food and sports, and introduced personalization features to help viewers find what they’re looking for. The service also tries to stay current by airing digital shows like “Hot Ones” and the MrBeast channel.
The legacy media giants’ biggest bets in the free space are their FAST services, chief among them Tubi. Tubi has gained market share thanks to its expansive library and has developed a small but growing pool of original content (a quarter of Tubi viewers watch at least one original each month, according to the company). Tubi prides itself on staying close to what its audience wants by monitoring social media trends.
“This year, social media users will surpass TV users. That’s a signal we’re paying close attention to,” said Adam Lewinson, Tubi’s chief creative officer.
Paramount (Pluto TV) and Comcast (Xumo) have their own FAST services. WBD has said that its own FAST service is coming soon, and it’s only a matter of time before Disney and Netflix follow suit. However, with the number of FAST channels approaching 2,000, there is widespread agreement in the industry that channel culling is inevitable.
Some players have also tried to innovate within the format. Fremantle, which distributes 24 FAST channels around shows like “Three’s Company” and “Baywatch,” is exploring ways to make its legacy game shows like “Family Feud” and “The Price is Right” interactive, said Laura Florence, Fremantle’s SVP of Global Fast Channels.
In a free fight, will the winner matter to Hollywood?
But the big question hanging over the industry is whether this RAPID growth will actually mean anything to Hollywood’s legacy players.
These services allow entertainment companies to squeeze more money out of their content libraries, expand into countries where paid subscriptions are less common, and potentially get people to subscribe to their paid services. For example, 43% of FAST users told Horowitz that they subscribe to a paid streaming service to continue watching shows they started watching on a FAST channel.
Sounds great — in theory.
But if users spend half their viewing time watching free TV, does that mean they’ll spend half their money on streaming services? New research from Parks Associates and JPMorgan suggests that the average number of streaming services people pay for is declining as subscriptions become more saturated.
And while FAST services are growing in popularity, their business model may not support high-budget original films, which are the lifeblood of Hollywood.
Paramount recently revealed that Pluto, which launched in 2013, has been profitable for several years. But FAST’s biggest, Fox’s Tubi, which followed a year later, has yet to turn a profit.
Roku’s annual content spending is pegged at “over $1 billion” in 2022 by CNBC, a far cry from the $17 billion Netflix plans to spend this year; Roku’s most ambitious film to date, a Weird Al biopic, reportedly cost just $12 million to make (Netflix routinely spends more than $100 million on a single film). Tubi’s net investment (which is the content portion) in fiscal 2024 is in the mid-$200 million range.
TV has been losing viewers to social media platforms. YouTube surpassed linear TV in viewership last year, and social media is expected to follow suit next year, according to Emarketer estimates.
Free streaming may seem like Hollywood’s way of luring back audiences.
But while legacy media companies can lure streaming viewers away from tech giants — like YouTube, Roku and Amazon — they need to find a way to keep their paid streaming services growing. Otherwise, it’s hard to say what they’ll get if they win the battle for free TV.