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Free streaming services are turning the media business on its head. Again.
Pluto TVâs most popular movies and shows (Pluto)
WHATâS OLD IS NEW AGAINÂ
Free TV is having a moment.
Heard of Tubi, Freevee, and Pluto? Theyâre just three examples of âfree ad-supported televisionâ âaka FASTâ a new crop of streaming services that work the way traditional TV networks worked:
(1) Pay money for the rights to show content, then (2) make money by selling ads against that content.
Itâs a simple business model: the spread between what it costs to run the shows and what they make from selling ads is their profit.
And free streaming sites are popular. In some cases, you donât even have to sign up: theyâre built right into your hardware: Samsung builds its âFree TV Plusâ service into every new TV they sell, and Roku builds âThe Roku Channelâ into all of its streaming devices, too.
GOOD TIMING
As people everywhere re-evaluate their spending in the wake of the cost of living crisis, FASTâs âfree contentâ value proposition is resonating with more and more people.
But thereâs actually a deeper money story behind the rise of FAST, and itâs an interesting one.
$$$
Everyone knows that high-quality, big-budget shows are expensive.
But high-quality content is actually expensive twiceâit costs a lot to make and then costs a lot once again to broadcast.
Most streamers have to pay residual payments (thatâs fancy finance speak for âincome that people continue to receive after completing the income-producing workâ) to the writers and directors and actors that worked on the shows on their platform, every year that the shows remain on the platform.
(A lot of people think that Netflix doesnât pay residuals, but thatâs not entirely correct. They donât pay residuals for their original shows, which are âbought outâ when theyâre commissioned. But, of course, Netflix does pay residuals on the shows that they license⊠which is why popular titles like Friends have disappeared over the years. Too expensive to keep on.)
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As a result, streaming services âhaving splurged to make a lot of original, exclusive contentâ are now struggling to pay the hefty licensing fees and residuals for other top-tier shows. (The streamersâ situation isnât made easier by the fact that subscribers can easily do things like share passwords, and cancel/restart their subscriptions.)
This leads to weird outcomes like Warner Bros. Discovery dropping Westworld âa show that aired on their cable channel HBOâ from their streaming site HBO Max (recently rechristened âMaxâ). Warner Bros. Discovery decided that paying the Westworld residuals wasnât worth keeping it on the platform.
And thatâs not an isolated example. The financial strain that streamers are facing has moved plenty of top shows and movies away from premium subscription based services âlike Disney+ and Netflix, which, though they both have an ad tier, still earn most of their money from subscriptionsâ and onto free, ad-supported platforms.
All of this is upending the traditional content hierarchy: popular, FAST platforms gain viewers because theyâre free. More viewers mean they can charge advertisers more. That gives FAST streamers even more money to license even more expensive shows and movies. Which, of course, entices ever more viewers.
Bottom line: these free networks are becoming the home of top quality content, triggering a pretty interesting shift in the dynamic of streaming content.
OK, WHATâS THE POINT HERE?
Specifically, all of this is bad news for the Netflixes of the world: as we all get accustomed to blockbuster content appearing on free platforms, our appetite for paying subscription fees might decline.
For us viewers, however, it seems ok: ultimately, FAST could lead to more choices and better experiences for viewers, as platforms compete not just on content, but on the overall value they provide.
Whatâs more, greater ad revenue may mean higher content budgets, and (potentially) more money for unionized writers (currently on strike to bolster pay, and prevent studios from using AI to generate screenplays).
But there's one last angle to consider here. As ad-supported platforms become more successful and prominent, we could see a resurgence of advertiser influence on content.
Though people donât talk too much about it now, historically, this has been a thing: advertiser demands used to totally shape the creative direction of popular shows. If this model carries over to the streaming era, it could impact the type and nature of content produced.
Whatâs old is new again, indeed.
More:
Dozens of TV shows are disappearing from streaming platforms like HBO Max. Here's why »»
The Wild West of streaming TV is here and itâs free »»
Written by Jon Kallus. Any feedback? Simply reply. Like this? Share it!đ