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Free streaming services begin to challenge subscription video

Screenshot: IMDB.com

Over-the-top digital streaming TV companies that don't charge people for access are rising as consumers face saturated budgets for subscription content.

Why it matters: While data shows consumers today are generally less tolerant of ads, the rise of these services shows that there's still an appetite for advertising if it's relevant — and if it means consumers can access their favorite content without having to pay a subscription fee.

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Driving the news: On Thursday, Amazon-owned IMDB launched Freedive, a free, ad-supported streaming video channel featuring hit movies and TV shows. The Freedive app can be viewed on mobile, desktop or on Amazon Fire TV devices.

Free, ad-supported streaming services are rising, as subscription streaming services face stiff competition for consumers' budgets.

  • Roku's free ad-supported channel, The Roku Channel, is the No. 3 ad-supported channel on the company's platform; it has about half the advertising per programming hour of traditional linear TV.
  • Hulu's ad-supported business continues to grow, with the company announcing over $1.5 billion in yearly ad sales this week.
  • Even telecom companies, like Dish and AT&T, are beginning to offer free tiers or products for streaming, like AT&T's "Watch" streaming service, which launched last year.
  • Free TV services like Xumo and Pluto TV also continue to grow their subscriber bases, as Digiday's Sahil Patel noted last year.

Between the lines: Some of these ad-supported streaming companies, which rely on new-age addressable (digitally automated) TV ads instead of traditional TV ads, could build lucrative businesses.

  • Both Roku and Hulu have increased their ad revenues by more than 50% years over year.
  • Roku’s ad revenue increased 57% from 2017 to 2018. At this point, its advertising business is growing faster than its hardware business, a sign of investment in the company’s free ad-supported channels.
  • While both are still relatively small in their share of the total digital advertising pie, they are expected to grow quickly over the next two years, per eMarketer.

Be smart: One reason these free services are growing fast is that they have become a win-win for manufacturers who need to add apps to new smart TV lineups and for programmers who need wider distribution for their content.

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