The best things in life are free: How ad-supported streaming is changing the game

Joe Supan
JS
Joe Supan
Nov 13, 2019

If you thought Netflix killed the commercial for good, think again.

Free streaming services, or ad-supported video on-demand (AVOD), are on the rise in recent years, and there’s no sign they’ll slow down anytime soon. 

People don’t want any more streaming service bills, plain and simple. Consumers said in a recent Hollywood Reporter poll that the “acceptable range” they’d like to pay for streaming services is $17 to $27. In practice, they’ve blown past that range, with the average person subscribing to three TV streaming services for a monthly total of $37. 

“There has been a certain amount of subscription fatigue,” Tom Ryan, co-founder and CEO of the free streaming service Pluto TV told Media Play News. “The problem comes down to payment. There are only so many services that people will pay for.”

That’s bad news for Apple TV+ ($5/mo.), Disney Plus ($7/mo.) and HBO Max ($15/mo.)  — all of which debut over the next six months. They’re entering a landscape in which consumers have 271 paid services to choose from, and have already maxed out their TV budgets. 

“The idea of the average household subscribing to Netflix, Hulu, Amazon, HBO Now and YouTube Premium all at the same time is ludicrous,” said Farhad Massoudi, CEO of the free streaming service Tubi, at a CES panel last year. “The average household has an income of $54,000 a year. They’re not buying $8 avocado toast.”

It’s that subscription overload that free streaming services are looking to capitalize on — whether they’re alternatives or complements to the ones people are actually paying for. And so far, most of that free streaming has been done by cash-strapped millennials. 

Research firm IAB found that the largest audience for free streaming services is 18- to 34-year-old adults. (Appealingly for advertisers, they’re also more likely to earn an income above $75K.) What’s more, 45% of respondents in their study said they used free services more often than paid ones. And according to Nielsen, 68% of North Americans don’t mind watching commercials if they can get the content for free. 

Those commercials tend to be a lot more palatable for viewers, too. According to Nielsen data, Americans see 11.2 minutes of ads per hour on average. Tubi, meanwhile, shows between three to six minutes of ads per hour, IMDb TV around four and Pluto TV around eight. 

“Advertisers have a real opportunity [with AVOD] to make connections with a younger [demo] likely to have higher incomes,” Anna Bager, EVP of industry initiatives at IAB, told Media Play News.

Until recently, that opportunity has largely gone unrealized. 29% of TV watching is done via streaming, but just 3% of ad spending goes to streaming services, according to data from Magna Global

That’s about to change in a big way, as major companies begin to invest heavily in free streaming services. Viacom purchased Pluto TV for $340 million earlier this year, Tubi announced that it would spend $100 million to license content in 2019 and NBC is reportedly mulling a “free for everyone” version of its upcoming Peacock streaming service

Meanwhile, Amazon, Google and Facebook all launched free streaming services in 2019, as well. 

Why is it so lucrative to sell advertising on free streaming platforms? It has to do with what the advertising world calls “addressable TV,” which Google defines as “the ability to show different ads to different households while they are watching the same program.”

Think about how a product you considered buying follows you around the internet for weeks in the form of banner ads. Free streaming services have the potential to target their commercials in the same way, something that is incredibly appealing to advertisers. 

“We’re gradually moving away from the paradigm where every viewer sees the same ad break,” said Justin Gupta, head of broadcast and entertainment, UK & Ireland at Google. “The uniqueness is the ability to do more granular targeting of TV adverts.”

That “granular targeting” opens up a lot of options for more creative commercials. “It also gives advertisers the capability to start doing ‘creative storytelling’ and showing different creatives to the same viewer over time,” Gupta said. 

“One example could be for a car advertiser. The first time you show the outside of the car, the second time you show the inside of the car, the third time you show the dashboard, the fourth time you show the price and the fifth you provide a call to action to a local dealership.”

The companies that have been utilizing these methods have already seen impressive returns. Earlier this year, the New York Times reported that Hulu generates more than $15 in revenue each month for each of its $6 subscribers. That’s why it could afford to lower prices on it’s ad-supported plan from $8 to $6 at the same time that Netflix raised them from $11 to $13.

Similarly, ad revenue from Roku’s free streaming channel accounted for more than 56% of the company’s total revenue last year, and is expected to pass $1 billion in 2019. “Free content is clearly important to our users,” Roku founder and CEO Anthony Wood wrote in a company newsletter last year, citing an internal survey in which 43% of respondents said the free Roku Channel “influenced or strongly influenced their decision to buy a Roku device.”

As these gold rush-type numbers continue to pour in, more media companies will opt to invest in free streaming services rather than fight for an increasingly small slice of subscription budgets. That means better content libraries for viewers who are willing to put up with a few ad breaks. 

Where to stream for free

Free streaming services generally fall into two categories: On-demand Netflix alternatives and live TV cable replacements. You can check out our articles on each type of service for more information, but these are the ones we singled out. They’re generally accessible in the same way that you watch Netflix or Hulu.

Best free Netflix alternatives

One good way to utilize these services is to check on them before you rent a movie from a service like iTunes or Google Play. Rather than go through them all one by one, search the movie title on JustWatch.com. It will show you if the movie’s available for free anywhere. 

Best free live TV streaming services

  • Locast – Local channels
  • Pluto – Sports, news, reality TV
  • Xumo – News, history, sports, comedy
  • STIRR – Local news

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