Why Streamers Are Pressing “FAST” Forward

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With billions being spent on content for streaming services attention is turning to how to return that investment. Following the land grab for subscribers to new service launches, the focus is now on how to monetize those eyeballs.

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WarnerMedia is the latest to announce plans for an ad-supported version of HBO Max later this year. Ad supported tiers are already a part of strategies at Comcast’s Peacock, ViacomCBS’ Pluto TV and at Fox (which spent $440 million on Tubi), though not yet at Disney+, while analysts believe the brand cachet that Netflix has as a premium content destination will serve it better than diluting the platform with ads.

“The State of OTT Revenue 2021 Study” finds strong interest among media execs in diversifying their streaming revenue models. It polled 100 “streaming executive decision-makers” in broadcasting, direct-to-consumer video brands, and multichannel aggregators.

Three quarters of those say their business already relies on multiple revenue streams, from SVOD and AVOD to product placement and sponsorship. Only 13% of total respondents rely solely on advertising or subscriptions.

More than three quarters of respondents plan to change their monetization model this year, or are considering making a change. Most will add AVOD to their strategies, which will support offering lower, or free, price points.

“Hulu, one of the largest ad-supported content platforms, makes about $15 per month in ad revenue per subscriber. Let’s just take that in: they make more on advertising than they charge for their premium, ad-free package, which is currently $11.99.”

— Ido Hadari, Applicaster

“Life after launch is uncertain, and as viewer behavior continues to change, brands plan to change their approach accordingly,” said Ido Hadari, CEO of Applicaster, the company that ran the survey. “Many respondents plan to incorporate advertising in order to offer free (the price is right!) or reduced subscription tiers for viewers.”

The study highlighted that most US cable companies are deploying “a matrix of monetization formats” to serve cable viewers and reach the growing audience that has cut the cord.

If anyone is still following a mobile-only strategy in the wake of Quibi — forget it. Viewers use multiple platforms and devices, and brands that want to monetize this tide of growth must be everywhere their viewers are. This is why mobile, CTVs and connected devices all made the top of the study’s “most important platforms” list. Expanding to new platforms is the easiest way to add new viewers in bulk, which will increase ad revenue and/or subscriptions.

AVOD (advertising-supported video on demand) has been around for years now, and it is expected that over $25 billion will be spent on ads in this space by 2025.

A sub-category is now gaining traction, free ad-supported streaming TV services, or FAST, that allow viewers to watch streaming content for free. Like AVOD, FAST services can be on-demand but FAST extends the offering by using dynamically inserted ads to provide linear channels to connected devices.

In this respect the most popular FASTs are Pluto TV (ViacomCBS), Xumo (NBCU), Tubi (Fox), Peacock (NBCU), The Roku Channel (Roku), IMDbTV (Amazon), and Samsung TV+ (Samsung).

Most of these are distributing a mix of content that you might have already seen on cable TV for the last 40 years: indie movies, older network TV series, and online video.

FAST channels are largely consumed on connected devices, like Roku boxes, Samsung Smart TVs, or Chromecast sticks. This is important because streaming sticks/boxes and smart TVs dominate viewing time.

Multichannel video programming distributors (MVPDs) are also players in the FAST game, because they too have linear content to distribute to the masses. These include Hulu + Live TV, Sling TV, YouTube TV and Philo.

Harmonic goes further and breaks down the types of FAST business model, as follows:

Platform agnostic: FASTs that are available across multiple operating systems. Examples include Pluto TV, Peacock, Roku, and Xumo.

Platform exclusive: FASTs that are only available on one operating platform. Examples include LG, Samsung TV+, and Vizio Watchfree.

Another way to distinguish a FAST service is whether the service is completely free, or if it has available premium content:

Pure free: A FAST with only AVOD and/or linear channels.

Premium available: A FAST supported with premium offerings such as pay-per-view, or SVOD options.

The Applicaster survey found at least 19 different combinations of pay and ad-supported streaming model.

The payoff for channel originators when it comes to FAST services is in the CPMs — the amount you get paid per 1,000 ad views.

According to Harmonic’s calculations the level of targeting from DAI commands CPMs of $40 to $50 per 1,000 impressions, for households and individuals, respectively.

“This means you can make between $0.60 to $1 for every hour a consumer watches your FAST channel,” states Robert Gambino, Harmonic’s director of playout solutions.  “With the average person consuming more than five hours of content each day (according to Nielsen), this adds up, fast. Hulu, one of the largest ad-supported content platforms, makes about $15 per month in ad revenue per subscriber. Let’s just take that in: they make more on advertising than they charge for their premium, ad-free package, which is currently $11.99.”

By contrast ad impressions for a typical cable channel is estimated between $10 and $25 depending on the content and time of day.

Pluto, the largest aggregator of FAST channels to date, had its first $1 million ad revenue day in 2019 and has already broken $3 million a day as content consumption has increased.

Another development in the FAST linear TV experience is how FASTs are sparking innovation. The unveiling of a large content library can attract new audiences that are eager to watch what’s been stored away.

“This large, and often niche, linear option can help hasten the cord-cutting switch and will likely see most viewers combine their SVODs alongside their favorite FASTs for additional programming options,” Gambino says.