AVOD on the FAST Track: Free Services Are Changing the Streaming Landscape

In 2020, Wade Davis, former CFO of Viacom, had a decision to make. Should he steer hundreds of millions of dollars of private equity money into majority ownership of Univision, the Spanish-language media giant whose broadcast TV fortunes were sagging in an era of over-the-top video and Netflix? Davis pulled the trigger, becoming CEO of the Miami-based company with plans to revitalize the company through digital distribution.

And true to his word, on March 31 of this year, Univision announced the launch of PrendeTV, Spanish for “switch on” or “turn on,” and billed as the first FAST (“free ad-supported television”) streaming TV service targeting the U.S. Latino audience with more than 40 channels and 30,000 hours of Spanish-language content available across mobile and connected TV devices such as Roku, Amazon Fire TV, Apple TV and Google TV.

“PrendeTV is unlike anything our audience has access to today and will completely change the landscape for video streaming in Spanish-language media in the United States,” Davis said.

His words may ring prophetic, observers and analysts say, and not just in the Spanish-language market. Ad-supported video-on-demand (AVOD) is evolving as a cost-effective alternative to subscription streaming video with a new moniker, FAST, and corporate mojo. FAST takes the AVOD concept popularized by subscription streamers such as Hulu, which offers a discounted ad-supported plan, one step further by completely eliminating the cost to the viewer.

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Fox Corp., ViacomCBS and Comcast, among others, are investing heavily in FAST platforms such as Tubi, Pluto TV and Xumo, respectively. Other players include Redbox Free Live TV, The Roku Channel, IMDb TV and Crackle Plus, featuring video streams that look like linear television with program advertising stitched into the feed.

In January, Xumo reported 24 million average monthly viewers, up from 9.6 million prior to the Comcast acquisition. Tubi saw viewership jump 58% in 2020, including 33 million average monthly viewers through the fourth quarter. Equally important, viewers consumed 750 million hours of content in the second quarter, which was 70% higher than the previous corresponding period. And Pluto TV saw monthly viewers top 30 million.

The U.S., through FAST, is expected to triple AVOD revenue by 2025, reaching $24 billion. This would account for 45% of the global total, up from a 33% in 2019.

“This new wave of FAST has expanded the definition of AVOD, attracting significant attention,” David Sidebottom, analyst with Futuresource Consulting, wrote in a December report.

India leads the world in monthly AVOD users with more than half a billion, according to data from London-based research firm Omdia. The U.S. follows with nearly 200 million users.

To retain existing viewers, and lure new ones, AVOD is moving beyond catalog programming and offering original content and exclusives, including, for the first time, live sports, with the goal of driving revenue.
Fox, which paid $440 million for Tubi in 2020, expects the service to generate $300 million in ad revenue this year and $1 billion in a few years. Fox believes Tubi revenue will supplant its broadcast networks’ revenue within three years as the streamer widens its content portfolio and viewer appeal.

Fox CEO Lachlan Murdoch said the platform is already profitable, with the company choosing to invest operating profits back into the business to help build up its profile. He cites Wall Street projections that suggest the AVOD business can over time mirror the same 20% to 30% margins generated by SVOD platforms.

“We’re not there yet, [but] we can win in a much more clever and careful way [than SVOD],” Murdoch told an investor group in March.

Tubi saw viewership jump 58% in 2020, including 33 million average monthly viewers through the fourth quarter. Equally important, viewers consumed 750 million hours of content in the second quarter, which was 70% higher than the previous corresponding period.

“We can win in the AVOD world,” Murdoch said.

This sentiment is shared by Galen Smith, CEO of Redbox, the venerable kiosk disc rental company. Since launching Redbox Free Live TV a year ago, the FAST platform has inked more than 60 third-party content channels, including Magnolia Pictures, Cheddar, TMZ and Shout! Factory TV.

“We’re trying to do what no one else does — meeting the content needs of our customers wherever and however we can,” Smith said. “They can get the latest movie releases at our kiosks; they can watch content instantly, digitally; and now we are giving our value-loving customers something more.”

Growing Revenue, Influence

The AVOD ecosystem has long been led by pioneer YouTube, which generated $18 billion in ad revenue in 2020 largely through user-generated videos. The platform is expected to generate $21 billion this year, according to Futuresource. Pluto TV and Roku, by comparison, realized $250 million and $1.2 billion, respectively.

To spur Pluto (and Paramount+) growth, ViacomCBS last October named Tom Ryan, founder of Pluto TV, the new CEO of ViacomCBS Streaming. The company recently announced a $3 billion stock sale to subsidize increased digital content spend on Pluto, which ViacomCBS acquired for $340 million in 2019.

“I think it’s fair to say the world is embracing free streaming video,” Ryan said on the earnings call. “It’s definitely a growing category.”

Hollywood is taking notice. Lionsgate, which operates subscription-based platforms Starz (in the U.S.), StarzArabia and Starzplay International, in 2020 generated more than $700 million in catalog revenue to third parties across multiple channels. The studio-distributor has yet to enter the AVOD market — a situation that could change as Lionsgate looks to increase incremental revenue from its TV shows and movies, according to co-chairman Michael Burns.

“The AVOD business is quickly becoming a nine-figure-a-year revenue business,” Burns told an investor event in March. “And that just came out of nowhere.”

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Distribution Diversity, Enhanced Content

To get wider traction among consumers, AVOD now positions itself as both a standalone streaming platform and as a conduit linking streaming video with television manufacturers. Brands such as Sony Bravia, Samsung, LG, Vizio, Hisense and TCL are partnering with FAST services to integrate video content via hundreds of channels distributed through their TV model user interfaces.

“The Smart TV has become a key battleground for AVOD,” analyst Sidebottom wrote in his December 2020 report.

Chicken Soup for the Soul Entertainment, an operator of ad-supported streaming video networks, partnered with Sony Pictures Television in the deployment of joint-venture Crackle Plus and Popcornflix on linear-TV and VOD offerings. Expansion of Crackle is a key part of the company’s strategy driving AVOD viewership.

“Our aim is to make our free movie/TV content available to all viewers on all available platforms, including streaming devices, game consoles, connected TVs and FAST networks,” said Philippe Guelton, president of Crackle Plus. “As we add new distribution touchpoints and develop both new AVOD and linear channel offerings … we are capturing a growing audience of unique, hard-to-reach consumers for our advertising partners.”

“Chicken Soup has done a remarkable job integrating Crackle into their business,” adds Erik Moreno, EVP of mergers and acquisitions, and corporate development, for Sony Pictures Entertainment. “We look forward to strengthening our relationship as we move forward.”

Crackle recently launched its app on connected TVs using the VIDAA operating system. Crackle programming includes series “Breaking Beauty,” “Spides,” “Road to Race Day,” “On Point,” “Insomnia,” “Yelawolf: A Slumerican Life” and “Going From Broke,” and feature films Corporate Animals, Blue Iguana, Anything is Possible: The Serge Ibaka Story, Lennox Lewis: The Untold Story, Robert the Bruce, Cleanin’ Up the Town: Remembering Ghostbusters and The Clearing.

Meanwhile, Pluto TV is now available on LG Smart TV models sold in the United States. Content from Paramount Pictures, BET, MTV, Nickelodeon and Comedy Central is offered on nearly 100 branded channels as part of the LG Channels network.

“Through this partnership, we have another opportunity to accelerate our mission to entertain by bringing a lineup of programming with instant discoverability,” said Brendon Thomas, VP of distribution for Pluto TV.

NBCUniversal placed its free ad-supported Peacock streaming tier on LG Channels, featuring more than 7,500 hours of movies, shows, live and on-demand programming across news, sports, reality and late night.

“With increasing consumption on smart TVs, we are happy to make it easy for Peacock customers … to stream all our content,” said Maggie McLean Suniewick, president of business development and partnerships for Peacock.

Samsung developed its own Samsung TV Plus FAST platform, offering 160 channels.

Fox in March updated carriage agreements with the National Football League that include landmark direct-to-consumer distribution such as AVOD. The company will create an “NFL experience” on Tubi consisting of fee-based premiere VOD action as well as condensed free ad-supported games throughout the season.

“The new digital rights provide us with the flexibility to deliver the NFL to customers in expanded and innovative ways,” Murdoch said.

Fox CFO Steve Tomsic said Tubi represents a “broadening of the future” for network television, which continues to see ratings decline as viewers migrate online. Broadcast assets such as “The Masked Singer” are being co-distributed on Tubi to give the platform an “extra special” edge, Tomsic said.

Cinedigm targets faith and family (Dove Channel), comic conventions (CONtv), horror (Screambox and Bloody Disgusting TV), and, most recently, independent cinema (Fandor) on both AVOD and SVOD.

“We think that, when launched globally at scale, these [OTT video] segments can be huge revenue opportunities,” said Erick Opeka, president of Cinedigm Networks.

The Roku Channel on March 19 launched “Cypher,” a Canadian-made FBI series featuring seven hour-long episodes. The channel will also become the exclusive destination for more than 75 shows and documentaries acquired from short-lived SVOD platform Quibi.

Speaking on Roku’s most recent fiscal call, CEO Anthony Wood said the content acquisitions underscored the appeal of AVOD, adding that the growth of The Roku Channel is twice as fast as the Roku platform, ending 2020 with a record 63 million monthly viewers.

“As our scale grows, we are sourcing different types of content,” Wood said. “The Quibi deal fits into that, in that it’s premium content that we think will appeal to Roku viewers.”

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Targeted Advertising

Roku in May kicks off the IAB 2021 NewFronts Lineup as the first presenter of content to media buyers. The positioning underscores how important AVOD/FAST has become to marketers.

“We’ve seen first-hand the role TV streaming has played in consumers and marketers’ lives in the last year,” said Roku’s Alison Levin, VP of global ad-revenue and marketing solutions. “[We] look forward to sharing how marketers can buy TV like you watch TV.”

Roku also announced the launch of an advertising brand studio to produce creative spots for over-the-top video tailored for marketers. The unit aims to help marketers go beyond the traditional 30-second TV ad, to commissioned short-form TV programs, interactive ads and related content.

“The shift to TV streaming has accelerated,” said Dan Robbins, VP of ad marketing at Roku.

Roku inked a deal with “Funny or Die,” a comedy website whose executives Chris Bruss and Brian Toombs are joining the streaming media pioneer, along with Rachel Daly Helfman from Snap. The plan is to create ad-supported streaming video content targeting specific viewers. For example, the brand studio worked with TurboTax to present streaming access to college basketball’s March Madness national championship tournament. The advertiser, working with Roku, built an interactive “College Basketball Game Guide” offering free content and augmented reality games playable on the TV screen or mobile device.

A 2020 study by Roku and IPG Media Lab found that branded experiences, together with video advertising, could stimulate four times the purchase intent among consumers.

“Branded experiences on the Roku platform helped us shift ad budgets quickly to TV streaming and go beyond traditional advertising to move the needle on purchase consideration,” said Lisa McQueen, media manager with Lexus.

A separate study in the U.K. found media buyers are taking to FAST in a major way. Data from Unruly suggests that more than two-thirds (67%) of advertising executives think FAST is a more-effective (i.e., less-expensive) option than linear-TV advertising. The report found that 100% of media agencies and 77% of brands surveyed plan to invest more in targeted streaming video marketing over the next 12 months. Unruly found that 54% of consumers are spending more time watching FAST content since the start of the pandemic. With a plethora of new channels and devices entering the market, the competition for AVOD attention is rising rapidly.

Alex Khan, international managing director at Unruly, said brands are much more likely to want additional training on the benefits of FAST (48%) and audience-specific insights (48%) compared to traditional ad agencies.

“With a possible return to normal following the COVID-19 pandemic on the horizon, we believe our research highlights CTV’s ability to deliver across a multitude of goals throughout the purchase funnel,” Khan said.

Rebecca Waring, global VP of insights and solutions, said the report emphasizes that there is no single driver behind the growth of FAST, as buyers are attracted by a broad range of benefits.

“In our experience, [FAST] campaigns are being judged on a variety of KPIs (key performance indicators) that span viewability, incremental reach and brand lift,” she said. “It sounds like a challenge for one platform to satisfy so many different motivations and performance criteria, but according to our research, it appears [FAST] is rising to that challenge so far.”

“More options mean more time that consumers spend enjoying content,” adds Mark Fisher, president and CEO of OTT.X, the trade association supporting the distribution of OTT. “Both business models — AVOD and FAST — are here to stay and will continue to grow both as revenue streams for content owners and as commonplace entertainment platforms for consumers. These are no longer considered ‘down-market’ alternatives. Instead, they are seen as competitive options for consumers to access the plethora of informational and entertainment content being produced — enabling an uptick in niche and long-tail as well as more-general viewing.”

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