The Ads Are All Right

Suddenly, it's safe to sit through a few commercials again.

Free-to-use, ad-supported streaming services are commanding attention right now, as new and forthcoming subscription OTT products from Disney, WarnerMedia and Apple try to crowd into homes that already pay plenty of monthly bills for video platforms.

In fact, late last year, even before the announcement of these new entrants, research company Parks Associates declared the subscription video on demand (SVOD) market "saturated," thanks to Netflix, Amazon Prime Video, Hulu, HBO Go and CBS All Access, to name just a few of the established services.

Simultaneously, advertising-based video on demand (AVOD) services like Pluto TV, Tubi, Roku Channel, Walmart's Movies on Us and Amazon's IMDB Freedive are flourishing. They all offer robust libraries of several-year-old movies — think semi-recent theatrical favorites you'd get stuck on while channel-surfing basic cable.

They also offer plenty of TV shows — usually reality and scripted repeats that would fit nicely into TV Land's schedule — and it's all free to anyone willing to sit through an average of four to six minutes of pre-roll and mid-roll commercials.

"It's a topic I've been preaching for four or five years," says Farhad Massoudi, CEO of AVOD startup Tubi. "It's just common sense. No matter what your income is, the idea of the average household subscribing to Netflix and Hulu and Disney+ and ESPN+ — all at the same time — is just ludicrous."

AVOD platforms are attracting a lot of attention — from viewers hoping to save money, from big TV companies looking for a toehold in a digital future and from advertisers seeking internet-driven efficiencies when pitching, say, diapers only to consumers who actually have babies.

"And viewers without babies shouldn't have to sit through those commercials — this is better for both viewers and advertisers," explains Massoudi, whose company saw a 180 percent uptick in revenue in 2018.

Tubi offers a smorgasbord of 12,000 movies and TV shows for free over the internet, or in apps on devices such as iPhones, Roku, Amazon Fire-connected TV boxes and smart TVs. The Tubi app is also native to cable TV platforms offered by Comcast and Cox Communications.

Earlier this year, Tubi secured a $25 million loan to bolster its content library. Its shopping spree included deals with NBCUniversal and Warner Bros. TV. Tubi has also invested heavily in the data technology needed to create rich, personalized experiences for users as well as Google-like "programmatic" purchasing efficiencies for advertisers.

With many big media companies, including Sinclair Broadcast Group, looking for ready-made streaming platforms, Tubi has been the subject of numerous mergers-and-acquisitions rumors of late.

Meanwhile, Viacom paid $340 million in January for another AVOD start-up, Pluto TV.

Like Tubi, Pluto TV is viewable in apps and on the major web browsers. It gives viewers two options — a live-stream of channels that looks like your traditional cable TV program guide and a thumbnail-laden mix of 5,000 hours of on-demand choices, similar to Netflix.

The hundreds of older movie titles available on Pluto TV include Steven Spielberg's 1997 slaveship drama Amistad, the 2011 Johnny Depp-voiced animated feature Rango and the 2005 pimp-with-a-heart-of-gold Sundance darling Hustle & Flow. Its TV show choices are heavy on cable reality fare, including Discovery Networks shows like Survivorman and Misfit Garage.

Pluto TV attracts an audience of 12 million monthly viewers with this selection; it's heavy in entertainment programming but lacks live sports and news. That's a great match for Viacom, which was caught flat-footed about seven years ago when its younger audience suddenly stopped watching shows on linear cable and started streaming them on Netflix.

Now Viacom has a better way to reach and monetize its audience, and it doesn't involve Netflix.

Pluto TV provides a ready-built streaming platform, with 50 percent of its audience between the ages of 18 and 34 With Viacom making major investments in targeted advertising tech recently, it's found a great way to transition network brands like MTV, BET, Comedy Central and Nickelodeon into the digital present.

"Viacom sells billions of dollars in advertising, and they have advanced advertising capabilities," says Pluto TV CEO Tom Ryan, talking up the merger synergies. Going forward, he adds, "You can expect to see a lot of Viacom brands added to Pluto TV in an aggregate way."

Just a few years ago, we were talking about the end of the TV commercial. As linear TV's audience continued to age and shrink, advertisers were fleeing to advanced digital platforms offered by companies like Google and Facebook. With traditional broadcast and cable channels packing in even more commercials to try to make up for the revenue loss, many younger viewers fled to ad-free platforms like the major SVOD services.

But advertisers, Massoudi says, still prefer to reach consumers on a big TV screen as opposed to a Google banner ad. Count Roku, which now makes more money selling advertising than it does peddling OTT gadgets, as another beneficiary.

Last year, Roku saw advertising revenue grow 85 percent to $419.9 million, thanks primarily to the Roku Channel. That's the free-to-viewer programming smorgasbord that's available as an app within the ecosystem of Roku devices and enabled smart TVs. That ecosystem reaches 27 million regular users. Roku Channel is also on the open internet.

Like Tubi and Pluto TV, Roku Channel has gobs of somewhat recent theatrical movies available in a Netflix-like menu, but it also has on-demand programming from ABC News, Tastemade and Yahoo News and Finance. Users can also sign up through the Roku Channel for premium channels like HBO and Showtime, a benefit that used to be confined to the pay-TV ecosystem.

"We are bullish on AVOD, both in terms of its value to consumers and its importance in the OTT business model," Scott Rosenberg, general manager of Roku's platform business, said during a recent Roku investor event. "We see AVOD growing pretty nicely on our platform, and clearly it has growing recognition in the industry."

With success comes competition, and platforms like Tubi, Pluto TV and Roku Channel are seeing more of that these days.

In January, for example, Amazon launched Freedive through its Internet Movie Database (IMDB) platform. The new AVOD offering included around 130 movies to start, such as A Few Good Men, Adaptation, Memento, True Romance and Midnight in Paris. Its TV shows include Heroes, Fringe, Gilligan's Island and Quantum Leap.

Comcast and NBCUniversal, meanwhile, are prepping a new streaming platform that will be offered to Comcast cable-TV subscribers at no additional cost, but with ads.

For its part, Walmart has operated Vudu, a site for selling and renting streaming movies and TV shows, since 2010. For two years now, however, the big box chain —which was the top DVD seller back in the heyday of physical discs — has been steadily growing its own AVOD platform within Vudu, which it calls Vudu Movies on Us.

Movies on Us offers around 3,125 older movie titles, as well as 262 full seasons of TV shows — all free but with advertising. According to Julian Franco, head of AVOD for Vudu, Walmart has conducted surveys of the millions of customers that come through its stores. "They've told us they'll watch ads in order to save money on video," he says.

Franco notes that most U.S. homes don't even have Netflix, and he's right. The top streaming platform has around 55 million subscribers in the U.S., a country with 117 million TV homes.

He adds that today's AVOD viewers have their limits — ads have to be placed strategically, and ad loads are usually no more than six minutes for an hour-long show, versus the roughly 14 minutes served up on linear TV.

The AVOD model harkens back to the formative, pre-cable era of television, when consumers accepted free TV in exchange for watching ads. Commercials were supposed to be on the way out, along with linear TV.

A few years ago, platforms like Hulu began offering premium commercial-free versions, targeted at millennials who were supposedly unwilling to sit through any commercials at all. But according to Hulu chief marketing officer Kelly Campbell, her company has surveyed younger consumers and found them perfectly content with a manageable level of spots.

Hulu found that Generation Z consumers are 39 percent more likely than the general population to watch an ad, and 29 percent more likely to pay attention to it.

"Generation Z-ers think differently about TV," Campbell said, speaking at CES. "They're more receptive to advertising. They've grown up in this IP-powered universe, and they're used to targeted advertising."

With that in mind, Hulu recently reversed course and lowered the price of its base tier, which is partly ad-supported, to $5.99 a month. Priced at less than half of Netflix's most popular tier (now $13 a month), the entry-level Hulu offering blends a reduced price with the requirement that viewers sit through some ads.

Amid the AVOD gold rush, another major streaming video operator, Google, has also pivoted, backing away from its $11.99-a-month YouTube Premium subscription platform. Speaking alongside Campbell at CES, YouTube's top product manager, Neal Mohan, conceded that his company is "primarily an advertising-supported business."

With so many streaming companies moving to ad-supported models, are we likely to see big new original shows from AVOD suppliers, as we have with Netflix and the rest of the SVOD kingdom?

Walmart's Movies On Us has begun commissioning family-friendly originals, starting with a remake of the 1983 Michael Keaton film Mr. Mom. Tubi's Massoudi, however, doesn't believe originals are a good bet for AVOD.

"Strategically, it doesn't make sense for us to make original content, with Netflix spending $13 billion or $14 billion on originals," he explains. "That's way beyond what anyone in the AVOD ecosystem could spend."

As he sees it, AVOD is complementary to SVOD services, which supply "1 percent or 2 percent" of total programming through sought-after original shows. "We aggregate the other 99 percent," he says.

If AVOD platforms did enter the competitive originals race, Massoudi adds, at this point they'd be bidding for shows that had already been rejected by all the SVOD suppliers.

With so much competition in the subscription realm, he predicts churn will become an even bigger factor for SVOD, with consumers signing up for streaming services just to see a coveted new show and then canceling soon after. "That doesn't pay for the price of the original — in fact, it suffocates the show," Massoudi says. "It's not a game the content companies can continue to play."

While AVOD platforms don't want to follow SVOD's expensive originals playbook, they do mimic their global ambitions. Pluto TV, for instance, is eyeing regions including Europe and Latin America. CEO Ryan sees his platform's new ownership as a giant step in the right direction.

"Viacom operates in about 180 countries," he says. "They have a global footprint, and that will further our mission of being a global player that much faster."

This article originally appeared in emmy magazine, Issue No. 8, 2019