Free TV has its revenge and it’s a big deal for Hollywood

Well, that was then.

Over the past year, viewers have fallen in love with the same (cheaper) ad levels of those streamers. But perhaps more significantly, they are spending more and more time pursuing completely free options. YouTube has taken the throne as the best streamer on TV, beating out Netflix. And free, ad-supported TV services like Fox’s Tubi and Paramount’s Pluto TV, where people can watch content from older reruns like “The Jeffersons” to newer titles like “Scandal.”

“In case you haven’t noticed, everything is expensive these days,” YouTuber Jamie Clement posted online. “A few ads are small potatoes for a gift like this. Tubi is great.”

But free TV isn’t so great for entertainment companies that have spent the last few years trying to catch Netflix. The idea that everyone would watch TV behind a paywall — just via streaming instead of cable — turns out to be a mirage.

The underlying problem: It’s not clear how these free services could support new, Hollywood-style programming even if they wanted to.

TV already has to compete more and more with free social media apps like TikTok and Instagram, which are mainly consumed on phones. Now that YouTube is making the leap to TV screens and “FAST (Free, Ad Supported) TV” (FAST) services are having a moment, where does that leave Hollywood?

The big fear in Hollywood is that Peak TV is gone for good, and the entertainment giants are doomed to fight for an ever-shrinking slice of attention. The industry will not disappear. After all, Netflix is ​​doing well and Disney is a behemoth.

But occupying a diminished status in the entertainment landscape is not exactly glamorous. Just ask the magazine industry.

Paid streaming has a business problem

When television began, it was broadcast over the air and free, with the money coming from advertising. But the rise of cable made pay TV the norm. By 1992, 60% of American households subscribed to cable.

When streaming first started, fueled by Netflix and Hulu, it was largely a paid proposition. This came as Disney, Warner and Comcast launched their own apps to compete, starting in 2019. To get people to subscribe to these new streamers, entertainment companies produced new shows at record levels, giving birth of the Peak TV era, which grew. in 2022 to 600 shows before falling 14 percent in 2023, according to FX Networks research.

But spending on new content wasn’t sustainable. Other than Netflix, which has a massive reception advantage, none of the streamers have consistently achieved profitability. They made it easy to cancel, which people were quick to do when their favorite shows ended, forcing companies to spend more on original content.

Wall Street spooked about streaming profitability in 2022, and entertainment companies held back content spending. They created sustained tiers of ads to get new viewers and new revenue streams. They also formed partnerships to try to get people to stay.

Ad-supported levels, in particular, have been a bright spot for the industry. They allow streamers to raise prices to their ad-free tiers while releasing cheaper, ad-supported versions.

“Consumers are spending less, but instead of holding back, many are using ad-based alternatives to save costs,” Sarah Lee, research analyst at Parks Associates, said in a report.

But paid streamers faced competition from other players who had an even cheaper proposition: $0.

More and more people are watching free TV

In July, YouTube hit a milestone: It became the first TV streaming service to surpass 10 percent of total viewing, according to Nielsen. It ranks as service no. 1 with 10.4%, beating Netflix’s 8.4%.

The growth of YouTube on TVs has shown that content from creators can make the leap from phone to the big screen.

Media industry analyst Evan Shapiro sees the rise of free-to-air viewing as a throwback to the 1990s, when a combination of free-to-air and pay-per-view on cable was the norm.

“There has always been a high take-up of free-to-air TV and increasingly on YouTube,” he said. “It’s the No. 1 channel on the big screen and a subset of 2.5 billion users use it on TV.”

The other big success story in free streaming was Tubi, which became the fastest-growing streamer in the last year and matched Disney+ in viewership.

Started in 2014 and acquired by Fox in 2020 for $440 million, Tubi is one of the oldest and largest free streamers with 65,000 shows to choose from. Although it has live, linear channels such as ABC News and the NFL, the bulk of its viewing is on-demand movies and shows, shown in lineups such as “Westerns,” “Mystery” and “Romance.”

Add in Pluto TV and The Roku Channel, the other FASTs big enough to appear in the Nielsen rankings, plus YouTube and free streaming TV accounted for 14.8% of viewing in July, up from 12.5% ​​a year ago early. Meanwhile, the subscription fee paid was virtually unchanged.

A dirty little industry secret is that a certain amount of television viewing has always been passive. In other words, the set is left to run in the background. Many FAST services offer a simpler way to watch passively than paid streamers. Some play linear TV channels that are easy to turn on or offer a range of news, entertainment and sports just a few clicks away – no credit card or login required.

“Sometimes you just come home and you’re exhausted and you want to be served with the content,” Jenn Vaux, head of content acquisition and programming at Roku, said of FAST’s appeal. “Then you strategize on the loose aspect.”

That last bit may be obvious, but it’s hard to overstate. These services are free. Sure, you won’t get the latest season of “The Bear” or “Wednesday,” but all paid services are getting more and 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.

People’s tolerance for ads has also increased in recent years, according to Hub Entertainment Research.

Technology and traditional media will battle it out for free TV in the coming months

Looking ahead, the major players already ahead in free-to-air TV are likely to continue to gain traction.

YouTube is the clear leader for user-generated content that is important to younger audiences and has helped make it the must-have service.

Amazon also has an advantage with its free service, Freevee, because it gets preference from Fire TV, the company’s smart TV operating system. Like YouTube, it is also part of a larger entertainment ecosystem.

Roku also has the platform advantage with its free streamer, The Roku Channel. It’s ahead of Max, Peacock and Paramount+ in Nielsen’s ratings and trails only Tubi among FAST. Roku has created different content areas, such as home, food and sports, and introduced customization features to help viewers find what they’re looking for. He also tries to stay current by airing digital shows like “Hot Ones” and a MrBeast channel.

The legacy media giants’ biggest bets in the free space are their FAST services, chief among them Tubi. Tubi is gaining traction thanks to its vast library and has developed a small number of originals (a quarter of Tubi viewers watch at least one original per month, the company says). Tubi prides itself on staying close to what its audience wants by monitoring social media trends.

“This year, social media users will outnumber TV users. That’s a signal we’re paying a lot of attention to,” said Adam Lewinson, creative director of Tubi.

Paramount (Pluto TV) and Comcast (Xumo) have their own FAST services. WBD said its own FAST service is coming, and it could only be 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 the elimination of the channels is inevitable.

Some players have tried to innovate in the format as well. Fremantle, which distributes 24 FAST channels around shows like “Three’s Company” and “Baywatch,” is exploring ways to make its older programs like “Family Feud” and “The Price is Right” interactive, Laura Florence said , SVP Global Express Channels at Fremantle.

In the battle for free, will the winner even matter to Hollywood?

But the big question looming over the industry is whether any of this rapid growth will actually matter 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 percent of FAST users told Horowitz that they subscribed to a paid streaming service to continue watching a show they started watching on a FAST channel.

Sounds great – in theory.

But if users spend half their viewing time watching free-to-air TV, does that mean they’ll spend half as much money on streaming services? Recent research from Parks Associates and JPMorgan shows that the average number of streaming services people pay for is declining as subscription fatigue sets in.

And while FAST services are growing in popularity, the business model may not support the high-cost originals that are the lifeblood of Hollywood.

Paramount recently revealed that Pluto, which was released in 2013, has been profitable for several years. But the biggest FAST, Fox’s Tubi, which followed a year later, is still not profitable.

Roku’s annual spending on content was pegged at “more than $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, cost just $12 million (Netflix typically spends over $100 million on a single film). Tubi’s net investment (of which content is a part) in fiscal 2024 was in the mid-$200 million range.

Television has already lost audience to social media platforms. YouTube surpassed linear TV in terms of audience size last year, and social media is expected to follow suit next year, according to an Emarketer forecast.

Free streaming may seem like Hollywood’s way of wooing viewers.

But even if traditional media companies can lure streaming audiences away from tech giants — like YouTube, Roku and Amazon — they have to figure out how to keep their paid streaming services growing. If not, it’s hard to say what winning the battle for free TV will actually get them.