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Free TV streaming services like Tubi help make cord cutting make sense

As people ditch cable, free streaming services suddenly abound—and might be a bigger business opportunity than they seem.

Free TV streaming services like Tubi help make cord cutting make sense
[Photo: courtesy of Tubi]

People who pooh-pooh the cord-cutting phenomenon love to argue that the cost of streaming services such as Netflix and Hulu really adds up, to the point where someone who dumps cable in favor of streaming isn’t actually saving money.

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Such skeptics haven’t accounted for free streaming services like Tubi, which allow cord cutters to watch thousands of movies and shows without subscriptions. Although Tubi’s been around for almost five years, it’s enjoying a growth spurt as more people ditch cable and seek cheaper alternatives. The company just announced that viewership in 2018 was 4.3 times greater than the year before, and that December alone brought in more viewing time than all of 2017. (It did not share specific hard numbers, though it claims to be the largest ad-supported streaming service.)

The rest of the industry is now taking notice of free streaming, especially with the subscription business becoming more crowded. Last week, Viacom acquired Pluto TV for $340 million to jump-start its ad-supported video business, and earlier this month, mega-broadcaster Sinclair launched a free streaming service called Stirr. Amazon also launched a service called Freedive through its iMDb brand, and The Roku Channel has been expanding its ad-supported videos beyond Roku smart TVs and streaming players to web browsers, mobile devices, and Samsung TVs. Even Comcast recently announced plans for a free streaming service–albeit just for existing pay TV subscribers–in 2020.

In the age of cord-cutting, the reality is not that people will subscribe to a dozen streaming services and fail to save money. What they’ll actually do is pick a few subscriptions–as surveys from TiVo and Deloitte have estimated–and pad them out with free services like Tubi.

Tubi CEO Farhad Massoudi [Photo: courtesy of Tubi]
“I think what everybody has finally come to realize is that the SVOD market is saturating,” says Tubi CEO Farhad Massoudi, referring to subscription-based streaming services such as Netflix. “There isn’t room for too many SVOD services on an average household basis, and that means [ad-supported streaming] … is the next big frontier.”

Streaming the 99%

The most obvious reason for the rise of ad-supported streaming is the sheer number of subscription services competing for space on customers’ TV bills. Beyond Netflix, Hulu, and Amazon Prime, there are premium cable-based channels such as HBO, Showtime, and Starz, plus CBS’s All Access service and even full-blown live TV bundles like Sling TV and YouTube TV. New on-demand services from Disney, AT&T’s WarnerMedia, and (it seems likely) Apple will also enter the fray later this year, and niche services such as CuriosityStream (for science documentaries) and Acorn TV (for British programming) are available by the dozen. It’s safe to assume not all of these services will succeed.

Still, subscription overload alone doesn’t explain the sudden rise of ad-supported streaming.

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[Photo: courtesy of Tubi]
With services like Netflix spending more on original programming or high-profile licensed shows that can lure in new customers, they’re becoming less interested in buying up older movies and shows, says BTIG analyst Rich Greenfield. At the same time, people aren’t watching reruns on cable like they used to, which in turn means TV studios are looking for new ways to make money on their back catalogs.

“As [cable] viewership drops–they’re having a hard enough time in prime time, let alone the off-hours–it creates an opportunity for companies like Tubi,” Greenfield says.

Unlike Netflix or Amazon Prime, Tubi has no interest in original programming, because it doesn’t need flashy exclusives to convince viewers to pay up. Instead, the company looks at its data on what users are watching and tries to predict what might rack up a lot of viewing hours.

The Tubi catalog therefore tends to favor quantity over quality, doubling the size of Netflix’s catalog with more than 12,000 movies and shows. Massoudi says some of Tubi’s most popular programming includes reality TV (Dog the Bounty Hunter, for instance), horror films (I Spit on Your Grave I, II, and III), and kids’ programming (Bratz), which may bring in more eyeballs than critical acclaim.

“These are not necessarily the type of titles that you put out there in a press release, but there is a huge audience for them,” Massoudi says.

Tubi isn’t slowing down on acquiring new content, either. This year, the company plans to spend in the nine figures on licensing, and Massoudi says Tubi has already started competing with TV networks that want to license older shows for cable.

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“There is a ton of content out there,” Massoudi says. “If you have access to Netflix, you have access to less than 1% of the movies and TV shows on the market, and so there is a huge library of content that you don’t get through Netflix, and some of it is incredible content that we all love to watch.”

The free TV market

Despite the sudden interest in free streaming, Greenfield says it’s unlikely that services such as Tubi will outgrow major subscription services like Netflix. Case in point: Netflix is currently worth about $150 billion, versus the $340 million that Viacom paid for Pluto TV. Still, he believes free streaming can be a meaningful business that supports multiple players, especially if they can get better at ad targeting and thereby make more money on fewer commercials.

“This is not about whether these [ad-supported streaming services] are going to grow into the scale of Netflix,” he says. “It’s a matter of, is there an opportunity to take advantage of the shift to consumer streaming through advertising? I think the answer is clearly yes.”

[Image: courtesy of Tubi]
Tubi already seems to have made some headway. Though the company recently raised $25 million in debt financing, it also turned a profit in the fourth quarter and says its ad revenues grew by 180% last year. Massoudi says the funding will help Tubi manage its cash flow as it licenses more content and spends more on marketing, but the profitable quarter proves that ad-supported video can be a real business. That’s not always the case, he says, with other online services–both on the ad-supported and subscription sides.

“We want to highlight that we are a self-sustaining licensing business that’s growing,” he says, “versus a lot of companies out there that are burning through a ton of cash and hoping for a Hail Mary.”

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