Despite Content Overlap, FAST services to take market share

Barclays’ Kannan Venkateshwar says as free ad-supported TV proliferates, even old content will compete with newer SVOD titles.

Free ad-supported streaming television (FAST) services are all the rage as content providers and distributors look for any way to squeeze profits from streaming video, and though there is a danger that too much of a good thing could once again saturate the market, Barclays Group believes the segment could end up taking share away from more traditional streamers.

The number of FAST services has grown significantly over the past two to three years with services from traditional media giants (Peacock, Tubi, Pluto, Xumo, Vudu and Crackle), hardware vendors — (Freevee, Roku Channel, Samsung TV Plus and LG Channels) and independents (Plex, Kanopy, Hoopla) and more are on the way. Warner Bros. Discovery has said that it plans to launch a FAST service at some point in the future as has Android TV.

Low barriers to entry and lower costs for content — most of the services offer classic TV series and older movies — make FASTs attractive to content creators and distributors alike. But in a research note, Barclays Group media analyst Kannan Venkateshwar asked, despite those plusses, is FAST sustainable?

One drawback is the lack of differentiation of content between the services. In his report, Venkateshwar noted that content overlap for FAST services is more than 80%, compared to 3.9% for Disney Plus and 9% for HBO Max.

What FAST services lack in content differentiation they apparently more than make up for in availability. In his report, Venkateshwar noted that FAST services may have higher penetration than any single premium subscription service because of the breadth of their distribution, through smart or connected TVs and other means. Smart/connected TV penetration is 87% in the U.S. and 40% globally, and every connected TV has access to the full suite of FAST services as well as streaming offerings like YouTube and TikTok.

Availability is Key

“Access to premium services on the other hand is based on penetration of SVOD services and consumer propensity to pay for multiple services,” Venkateshwar wrote. Although the average U.S. household subscribes to 4.7 streaming services, he added, the one with the highest penetration (Netflix) is at 56% while overall streaming penetration is 85%. 

“This implies that the mix within this SVOD basket consumed by the average household is not constant and there is a lot of switching based on content release schedules,” he continued, adding that it also accounts for the high churn levels of most SVOD services. 

While engagement for individual FAST services is below that of their SVOD counterparts, combined they account for more minutes than subscription offerings. Barclays, citing Nielsen research for one week this year (July 25), noted that together Tubi (4.4 billion minutes), Roku Channel (3.5 billion minutes), Pluto (5.1 billion minutes) and Peacock (3.5 billion minutes), edged out Amazon Prime Video (15.1 billion minutes) and was nearly twice that of Disney Plus (9.6 billion minutes) and almost three times that of HBO Max (6 billion minutes). That gap could narrow further as awareness for FAST offerings increases. That’s also where aggregation services like Android TV, Roku, and Comcast’s Flex offering could become a factor, Venkateshwar wrote. 

“With television viewership increasingly determined by aggregation services and the still growing clutter of thousands of titles across streaming services, we believe content choices are likely to be increasingly determined by the recommendation engines that can look across streaming services,” Venkateshwar wrote. “However, with every major recommendation engine having its own affiliated free ad supported streaming service (Comcast Flex-Peacock, Xumo, Vudu, Android TV — new Channels service, YouTube, Amazon Fire — Freevee, Roku — Roku Channel etc.), content on these services is likely to feature as prominently on TV screens as premium content for SVOD services.”

It’s All About Engagement

Ad revenue for FAST services is still low. According to Barclays, the top three services ad-revenue-wise are Pluto TV ($1.2 billion), Peacock ($1.16 billion) and Tubi ($653 million). And though upcoming AVOD products from Netflix and Disney Plus could further cut into that ad revenue pie, Venkateshwar wrote that it may all come down to overall engagement. 

“One of the most important drivers of engagement however may be the recommendation engine sitting outside these services,” the analyst wrote. “This in turn could turn streaming advertising workflow to a process not that dissimilar to search where the recommendation engine ultimately determines how GRPs are allocated across services, potentially in return for a share of ad revenues.” 

Walled Gardens and Open Spaces

Venkateshwar continued that this could lead to a split in the overall streaming ad ecosystem, similar to what has happened in the digital advertising arena. He estimated that today about 34% of time spent online is with so-called “walled gardens” like Facebook, Twitter, Snap and Pinterest, while the remainder is spent on the open Web, which also accounts for about 40% of ad revenue.

Over time, FAST could act more like the open Web, Venkateshwar wrote, while SVOD is more like a walled garden. 

“This process may result in advertising on these free streaming services being lower-priced fungible programmatic inventory, with CPMs being more comparable to services like YouTube and TikTok,” Venkateshwar wrote. 

According to the analyst, walled gardens are more likely to have CPMs that resemble television because they would have more control over ad delivery and measurement. But he added that across both segments the availability of inventory will most likely be determined by recommendation engines, which could result in lower ad margins. 

Still, Venkateshwar believes FAST services will become a larger category, albeit more fragmented than SVOD or AVOD spaces, making their success more dependent on aggregators. And though the same holds true for traditional SVOD and AVOD offerings like Netflix and Disney Plus, they have considerably more brand awareness as well as their own content franchises that should help drive engagement.  

“With Android TV launching its own free streaming service, Comcast already having Xumo/Vudu/Peacock, Amazon having Freevee and Roku having Roku Channel, we wouldn’t be surprised if independent free ad-supported streaming services like Pluto and Tubi, which have among the highest engagement today, end up declining in importance and consumption skews towards services owned by aggregators,” Venkateshwar wrote. “Therefore, we may see a significant skew in revenues across ad-supported streaming services over time, focused on a small set of services despite broader fragmentation in free service availability.” 

News Source: Nexttv