Free Streaming Services: The Unstoppable Cable Killer

If you listened to any earnings calls in Q3, you’d hear a repeated, steadily louder drumbeat: free streaming services are growing faster than anything else. Services like Tubi and Pluto TV are on an absolute tear, gobbling up audience growth and becoming an unstoppable force in the TV ecosystem. According to new research from Hub, 53% of TV watchers spent time with FAST services last month. That’s up 15% over the last two years.

Pluto TV will become a $1 billion business this year. It accounted for the majority of ViacomCBS’s streaming advertising revenue growth in Q3. It’s available in 26 countries and has 54 million active users each month.

FOX CEO Lachlan Murdoch told investors, “The growth at Tubi continues to exceed even our best expectations for the business when we acquired it. Tubi will generate significantly more revenue this fiscal year than our cost to purchase the platform in early 2020. In the first quarter of the fiscal year, Tubi more than doubled its revenues year-over-year. And total view time on the platform continues to climb with 30% growth compared to last year.”

Related: Best Free Streaming Services

What’s going on here?

The FAST and AVOD services are simply offering better products these days. Pluto TV seems to add another live streaming channel every other week. Tubi’s 35,000-title library is overflowing with highbrow and lowbrow content. In fact, when The Streamable cross-referenced Metacritic's Top 100 Best-Reviewed Horror Movies last month, Tubi had 12 of those titles, including many not available to stream elsewhere. The libraries are huge, the content appeals to multiple demographics, and, of course, it’s all free.

What about commercials?

Yes, these services do feature commercials, which can be a major drag. But our suspicion is that the growth in these services comes less from products like HBO Max and Netflix and more from traditional cable subscribers who are used to commercial breaks.

With a product like Pluto, most of the live channels feature content that previously aired on TV, so the shows are already built around the ad breaks. Yes, it’s always jarring when a commercial pops up at random during a movie, but it’s less concerning if you’re merely using the TV as “background noise.”

When paid service like YouTube TV can air the same commercial five times in 20 minutes, a free service (no matter how many commercials) feels like a relief.

Tubi is also remarkably restrained when it comes to commercials. During a movie, you might encounter an ad break every 20-30 minutes. It’s infrequent enough that you’ll forget a commercial break is coming.

We might separate viewing habits in terms of intentional viewing (watching a favorite sport or buzz-worthy film) and distracted viewing (scrolling on your phone while TV plays in the background). As great as Netflix and HBO Max and Disney+ may be, sometimes you just want to zone out and watch trashy reality TV or an old sitcom. That’s where the FAST and AVOD products offer a great complementary option.

What’s next?

As long as cable channels and vMVPDs offer commercials, the only advantage they have is the scale and scope of live events like sports. Live, linear TV seems like it’s on the same glide path as newspapers. Consider the viewership decline of the four major networks from 2014-2019.

Consider that free streaming services are offering a far more compelling product today than they did in 2019, and this trend is sure to accelerate further.

We’re also seeing SVOD subscriptions plateau. In the last quarter, Disney+ added just 2.1M subscribers, Hulu added 1M, Netflix added 4M, HBO Max added 1.9M.

Consumers are feeling maxed out on subscription fees, meaning they simply stick with the services they have, “churn” from service-to-service, or supplement their premium subscriptions with the free options.

This suggests that if media companies are looking for revenue growth, the fastest path is to crank out their own free products. Surely, Netflix, Disney, and WarnerMedia have some older content that isn’t getting engagement on their premium platforms. Hulu has a massive catalog of old sitcoms that would fit perfectly on a free service. (No one is subscribing to watch the 1988 “Munsters” reboot.)

Right now, ViacomCBS (Pluto TV), FOX (Tubi), and Roku (Roku Channel) are reaping the benefits of huge libraries and limited competition. There is an appetite for cheap/old content. The audience has been primed to expect the advertising trade-off. And this segment of the streaming industry is showing the hottest growth. The great irony of this gold rush is that it costs the consumer nothing.