Why Are AVOD Streaming Services Like Tubi and Pluto TV Suddenly a Very Big Deal?

While Schitt’s Creek is having a cultural moment with this week’s series finale — and maybe an Emmy for co-star Catherine O’Hara? — the quirky comedy is also a glimpse into where TV is heading through the rest of 2020 and beyond.

Schitt’s Creek just finished its sixth and final season on the Pop cable channel and became a hit on Netflix, which gets new seasons several months after they air on Pop. The show is now also on Amazon’s free, ad-supported IMDb TV service, which began running all but the current season in late March.

With free, ad-supported episodes available that premiered barely a year ago, Schitt’s Creek is an anomaly that’s becoming the norm.

Global streamers like Netflix, Prime Video and HBO have built gleaming palaces stuffed with premium, ad-free content by charging subscribers $10-$15 a month. This is how we got Stranger Things, Fleabag and Game of Thrones and how shows like The CW’s Riverdale and Lifetime’s You became bigger hits on Netflix than on their original networks.

Free, ad-supported, upstart streamers like Pluto TV, Roku Channel, Tubi, Vudu and IMDb TV have emerged as outlets for older — usually much older — catalog content. This is how we got free, ad-supported seasons of library hits like My So-Called Life, ALF and Duck Dynasty, plus thousands of movies, and those streamers are looking for newer titles.

The distinction between ad-free services with top-tier content and ad-supported services with lesser titles is about to get very blurry:

• Amazon’s IMDb TV just added Lost and Desperate Housewives and has been talking to Hollywood studios about making original shows.
• Comcast’s NBCUniversal bought both Xumo (for its live-streaming distribution) and Vudu (for its ad-supported and transactional businesses).
• Fox, which sold most of its assets to Disney in 2019, bought Tubi to scale up its ad-supported streaming.
• Quibi has ad-free and ad-supported tiers.
• HBO Max is launching as an ad-free service and has announced plans to include an ad-supported tier in 2021.
• Peacock, which launches April 15 for Comcast subscribers and July 15 for everyone else, will have a base tier that’s completely free.

Premium Stuff, Cheaper Options

Hulu and CBS All Access — the only major streamers with both ad-free and ad-supported tiers — are most popular as ad-supported services. Roughly 75% of CBS All Access subscribers and 70% of Hulu subscribers opt for the cheaper, ad-supported tiers. Quibi CEO Meg Whitman expects 75% of signups will be for the cheaper, ad-supported tier.

“I have Netflix, Prime Video and Apple TV+ that are ad-free, but I actually have the ad-supported tier of Hulu,” said Brad Schlachter, a TDG Research senior advisor. “It’s fewer commercials than you’d get on cable, and it’s significantly cheaper. I’m OK with the tradeoff, and I think a lot of people are.”

Peacock will be free and ad-supported for all households, and a premium tier — exclusive originals and next-day episodes of many NBC shows — will be available with ad-free and ad-supported versions available. NBCUniversal has not said what shows will be in the free tier, but the very existence of free, ad-supported shows like The Office and Parks and Recreation on Peacock — and Lost, Desperate Housewives and Schitt’s Creek on IMDb TV — will put pressure on other services to keep subscription costs down and consider launching their own free tiers.

“As households add more services,” Schlachter said, “the value proposition of a cheaper service with a few commercials makes sense for a lot of people.”

Tubi Reaches Critical Mass

Netflix, Hulu and other streamers have reported traffic bumps from people socially distancing in front of their TVs over the past few weeks. Tubi, which in February reported 25 million monthly active users, told Adweek’s Kelsey Sutton that its user base grew 22% and new users grew 50% during a two-week period in March.

“With the influx of new viewers, part of what we’re seeing is that they’re starting with the things they can’t find anywhere else, and then from that are being recommended other titles that interest them,” Tubi chief revenue officer Mark Rotblat told Adweek.

Fox’s $440 million purchase of Tubi in mid-March is rounding error compared to the $71 billion sale of its film and TV catalogs, the FX cable network and other assets to Disney last year, but Tubi gives Fox an immediate and growing source of advertising revenue and a promotional outlet for Fox News, Fox Business, Fox Sports and shows from the FOX broadcast network.

Free services like Tubi, Pluto TV and IMDb TV would have limited growth potential and limited advertising appeal to national brands if they marketed mainly to households that only watched free services, but a recent survey of 10,000 households by Parks Associates found much broader appeal for ad-supported streaming.

“Nearly all of the users of ad-based services also subscribe to traditional pay-TV service or streaming services like Netflix and Hulu,” said Brandon Riney, an analyst for Parks Associates. “There’s only a tiny share of streaming consumers who are using ad-based services exclusively.”

“That $70 Billion Needs to Go Somewhere”

Despite all the Netflix watching, Fortnite playing, and 6 million U.S. households cutting the cord in 2019, TV advertising is still $70 billion business. The coronavirus epidemic wiped out March Madness and bumped the Summer Olympics to 2021, but campaign ads for the 2020 presidential election and down-ballot races this fall will compensate for some of that.

Axios projects that national TV advertising will be down 13% for the year. The longer-range question is whether and when big advertisers will move more forcefully to streaming platforms.

Disney’s Hulu, NBCUniversal’s Peacock and others are counting on their experienced ad-sales teams to convince big ad spenders like automakers and fast-food chains to allocate bigger chunks of their spending to digital where they can be better targeted to the right consumers, and their counting on those services continuing to grow and add inventory for more advertising.

“Hulu is a $2 billion ad-revenue business,” LightShed Partners media analyst Rich Greenfield said in a recent webchat. “Roku is $600 million or $700 million. If you add Pluto and Xumo, you’re barely over a $3 billion ad spend.” If 6 million households a year continue leaving traditional satellite and local cable providers, advertisers will have to go where the viewers are. “That $70 billion of TV advertising needs to go somewhere,” Greenfield said.

TV Makers Are in the Driver’s Seat

Roku OS, Amazon’s Fire TV and Samsung’s Tizen account for more than 50 percent of U.S. smart TV sales, and Roku and Amazon’s streaming devices are the de facto operating system on millions more TVs. All three have integrated display advertising and ad-support movies, TV shows and livestreams directly into their operating systems.

“We created Samsung TV Plus because we were uniquely positioned as a device manufacturer to distribute the service globally at an unprecedented scale,” said Sang Kim, Samsung’s SVP of product. “Being the largest OTT platform with over 100 million active Tizen smart TVs worldwide provides instant distribution at scale that no other platform can provide.”

Samsung’s TV Plus app has more than 100 livestreams, including Cheddar, CBSN and Tastemade, and the TV Plus app is in the first position on the main row of apps. Roku’s similar Roku Channel has livestreams plus a catalog of film and TV titles. IMDb TV is focused on film and TV titles and is more integrated across Amazon’s Fire TV operating system, so IMDb TV shows can pop up in recommended rows along with content from other services.

Roku, Amazon and Samsung also maintain tight control over what apps are available on each of their platforms. How important is that? Just ask Fox Sports and the NFL.

Fox’s distribution deal to carry its streaming apps on Roku TVs and streaming devices was set to expire on January 31, which happened to be two days before Fox Sports was set to broadcast the Super Bowl on FOX stations and free on the Fox Sports app. A blackout would have affected a significant number of Roku’s 32 million active U.S. users who planned to watch the Super Bowl on the Fox Sports app.

Late in the day on January 31 — less than 48 hours before the biggest TV event of the year — the two sides reached a new carriage agreement. Roku and Fox didn’t disclose the terms of their new deal, but Roku generally gets 30 percent of a channel partner’s ad inventory in exchange for availability on the platform.

Scott Porch writes about the TV business for Decider and is a contributing writer for The Daily Beast. You can follow him on Twitter @ScottPorch.