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How Free Ad-Supported Streaming Services Are Disrupting The Industry
The film and entertainment industry has seen its fair share of disruptors over the past century, from the television to home video to on-demand streaming. Now, the 2010s streaming boom is facing its own disruption – the rise of free, ad-supported streaming television, or FAST services.
Where Netflix and other subscription video-on-demand (SVOD) platforms shook up the home entertainment industry just a decade ago, this new wave of free streaming channels is looking to shake up the streaming world.
Propelled by ad revenue rather than subscriptions, FAST offers consumers seemingly endless content for the low, low price of watching a few commercials. For an industry accustomed to disruption, the streaming wars are about to enter a new phase.
Cable vs Broadcast TV
Even before the rise of streaming, the television industry was locked in its own internal battle – cable versus broadcast. As early as the 1970s, the major broadcast networks recognized cable as an emerging threat, yet by 1989 cable had established a firm foothold, with half of all US homes subscribing.
Cable television reached the pinnacle of its power in the early 2010s. By 2010, a striking 90% of US households subscribed to cable, and in 2012, the number of scripted shows on basic cable channels surpassed that of broadcast for the first time. Cable advertising also achieved dominance, with over $10 billion in ad commitments in 2013, also overtaking broadcast for the first time. However, even as cable attained this peak, the first seeds of cord-cutting began to emerge. The early 2010s saw the rise of streaming as viewers, especially younger ones, started abandoning traditional pay TV bundles for on-demand and mobile alternatives.
The cable revolution profoundly disrupted the dominance of over-the-air broadcasters, dividing the television landscape and presaging the streaming wars to come. While broadcasters were still reckoning with the growth of cable, streaming would soon emerge to disrupt both.
The Rise of Streaming Services
The cord-cutting movement that would eventually disrupt cable is considered to have begun around 2007. That year saw the launch of pioneering streaming devices like Roku and Apple TV that fundamentally changed how users could access and consume content. These services delivered high-quality, on-demand programming directly to consumers, with lower monthly subscriptions and less advertisements. 2007 also marked the debut of early streaming platforms like Netflix and Hulu, offering audiences an alternative to bundled cable packages.
No discussion of streaming’s rise is complete without mentioning Netflix. The ubiquitous platform paved the way for today’s crowded streaming landscape. Although Netflix launched its initial streaming service back in 2007, it wasn’t until 2013 that the company released its first original series, House of Cards. The political drama took the world by storm, proving that streaming services could compete with traditional television. House of Cards ushered in an era of must-see Netflix Originals, soon joined by hits like Orange is the New Black. By leaping into original programming, Netflix led the way for streaming services to become serious players in premium content.
While Netflix pioneered streaming, Hulu took a different approach centering around TV content. By 2012, just five years after launch, Hulu reached 1 million subscribers. The service distinguished itself by offering full seasons of shows and next-day streaming access to current programs – a boon for cord-cutters. Originally Hulu operated both free, ad-supported and paid tiers, unlike competitors. But over time the free option dissolved, leaving an ad-supported plan that cost less than premium subscriptions. As streaming expanded, more entrants emerged, like Amazon Prime Video in 2011. Bundled with Prime subscriptions, Prime Video increasingly invested in originals after 2013.
The rise of streaming platforms like Netflix, Hulu, and Amazon Prime Video, coupled with growing cord-cutting, drove a massive migration towards streaming content. Audience enthusiasm for on-demand and mobile viewing led millions to abandon their cable and satellite packages every year. Indicative of this trend, an estimated 22.2 million U.S. adults cut the cord in 2017, a 33% increase from 2016.
Now, 2023 represents a landmark shift – for the first time, less than 50% of US households rely on cable or broadcast television as their primary viewing source. The streaming revolution has firmly taken hold, completing cable’s dethronement. But even as streaming displaced cable, a new wave of disruption looms from free, ad-supported streaming television.
NEXT: What is Streaming TV Advertising?
The Ad-Free Promise of Streaming Meets Economic Reality
The appeal of streaming went beyond just cost and convenience for cord-cutters and cord-nevers. A major draw was freedom from cable’s constant advertisements. Netflix and Prime Video featured no ads, while Hulu offered pricier ad-free tiers.
But while streaming opened new opportunities for studios, it has racked up massive losses. The high cost of original content, intense marketing budgets amid competition, and licensing deals have far exceeded subscription revenue.
Streaming’s financial unsustainability has already led to seismic industry shifts. Netflix introduced ads onto their platform and is cracking down on password sharing. Other services may follow suit. The streaming revolution has been hugely disruptive for cable, but now streaming itself faces disruption to its business model.
The Growth of Free Ad Supported Streaming Services
While heavyweight streaming platforms battled for subscribers, a quieter streaming revolution was brewing – the rise of free, ad-supported services. As Netflix, Hulu and others competed on original content and libraries, FAST channels offered on-demand viewing supported by advertisements. And with today’s overwhelming array of paid subscriptions, many viewers are flocking to these free or cheaper ad-based options. In this environment, watching a few ads seems a small price for uncomplicated access. With subscriptions reaching saturation, FAST channels are accelerating, monetizing through ads instead of monthly fees.
Major players in the FAST space like Reveel, Amazon Freevee, Tubi, Pluto TV and The Roku Channel have exploded in popularity this year. According to Samba, a stunning 1 in 3 streaming users now use a free, ad-supported service. Globally, FAST services is projected to pull in $6.3 billion in revenue for 2023, rising to over $10 billion in the US alone by 2027.
Subscription video-on-demand (SVOD) players are shifting their business model to capitalize on streaming ads. With streaming subscriptions reaching saturation, shifting to ad revenue provides streaming services a new growth avenue amidst rising costs. As cable TV was disrupted by subscription streaming, now streaming itself faces ad-supported disruption.
Ad Supported Tiers Are Becoming The Norm
The streaming wars have irrevocably disrupted the entertainment landscape, but this revolution continues to evolve at breakneck speed. Where cable was once king, now Netflix and other subscription services rule the day. But the unlimited growth of paid streaming appears unsustainable, driving companies like Netflix to embrace ads despite past promises. In turn, free ad-supported channels are on the rise, offering simplicity and lower costs. The streaming industry is shifting again as it continually reinvents television for the digital age.