Cost-consciousness is on the rise in the face of economic uncertainty. As businesses that rely on subscription revenue examine budgets and fiscal goals for 2023, subscription video on demand (SVOD) and cable TV providers need to carve out room for ad-supported revenue to be part of their strategy.
The free ad-supported streaming television (FAST) and ad-supported video on demand (AVOD) markets are large. FAST is expected to generate $6 billion in ad revenue by 2025. With the media sector in turbulence as viewers reassess their viewing options and spending habits, ad revenues promise to alleviate pressure from shrinking subscription revenue growth rates.
Currently, there are more than 1,400 FAST channels available from major OTT and linear companies including Disney, Paramount, BBC, and A&E. But it’s unlikely that the growth the sector has seen, especially since the start of the pandemic in 2020, will continue without some failures. SVOD faces the same challenges.
If the pandemic taught us anything, it’s how quickly viewing habits can change — for better or worse."
Media organizations should be planning for rapid change in 2023. If the pandemic taught us anything, it’s how quickly viewing habits can change — for better or worse.To maintain diversified content offerings and manageable prices for wallet-conscious consumers, revenue models must balance both cost and profit.
Churn vs. Monetization
SVODs have massive viewership numbers, but threats loom. Growth rates haven’t managed to reach pre-pandemic levels seen through 2019, and decreased slightly in 2021. Parks Associates recently reported that the SVOD industry average churn rate was about 45 percent—and was likely to increase as subscribers cut costs in today’s uncertain economic climate. Viewers will stick around if they perceive value. That means fresh, relevant, diverse content. For some SVODs to achieve that, they will need to revamp offerings.
Partnering with FAST providers is one potential strategy. There are multiple ways to monetize FAST: channels can be licensed to SVODs, branded to be “presented by” an SVOD. More prominent listings on users’ screens could be offered to FAST companies willing to partner with SVODs. SVODs get more content, and FASTs have new ways to reach bigger audiences.
Amazon’s Freevee platform has partnered with FAST channels like Fuse Media’s Fuse Backstage and Fuse Beat, for example. Fox is running three FAST channels on the Amazon news app on Fire TV, too. The numbers suggest that combining the strengths of both services is a viable approach not only for survival, but also for growth. While the largest SVOD platforms boast far higher engagement than individual FAST services, FASTs still have significant offerings. Pluto alone accounts for 5.1 billion minutes, and all FAST services combined account for more minutes than subscription offerings, according to Barclay's Kannan Venkateshwar.
Today’s economic and user trends suggest FAST is closing this gap quickly, and a recession will most likely provide additional accelerant. Though services are protective of user data, the steady growth of channels and platforms suggests the FAST pie is steadily growing. With 87 percent of US homes now using smart TVs, potential FAST accessibility is nearing a saturation point.
The Importance of UX
Making the services more user friendly while expanding and differentiating viewing options is among the key challenges facing all FAST players. FAST has done wonders for legacy content owners and will continue to be a favorite destination for news, sports, and niche content. But there’s huge opportunity for mainstream genres such as scripted series. Original, written programming boomed during the pandemic and will continue to grow, FX CEO John Landgraf recently argued.
Smart cross-branding with SVOD and even linear TV can turn FAST channels into revenue engines. There is tremendous opportunity for FAST services that offer one-of-a kind content, given that content overlap for FAST services is about 80 percent compared to around four percent for Disney+ and nine percent for HBO Max, per Barclay’s Venkateshwar.
User experience will also improve in the months and years to come. While some users may enjoy the familiar feel of scrolling through channels, these are not your parents’ TV listings. With nearly two dozen services, each with hundreds of channels, locating any particular channel can be daunting. Searchable and customized user interfaces similar to SVOD platforms, on the other hand, will help FAST services capitalize on their free, no-barrier entry.
The Importance of Data
Data will play a critical role in these synergies between SVOD and FAST moving forward, and in determining which services and channels rise to the top.
FAST channels provide instant data on content performance, enabling near-real-time tweaks on content strategies. Because SVODs know the content types that their audience likes, they’ll already have a sense for what content and channels they’d like to partner on. FAST’s real-time data insights can bolster those insights further, a value-add that FAST providers should use to their advantage in negotiations.
There is also a tremendous opportunity for lead generation, which can be crucial to combatting inevitable churn. SVODs can precisely target audiences based on their FAST choices, catering their products and messaging to those free users most likely to become loyal, paid subscribers.
Furthermore, with the support of AI and machine learning, media and entertainment company leaders can generate data that will help uncover underutilized revenue streams as FAST offerings are incorporated into SVODs.
The magic of AI is its ability to see unknown unknowns — those patterns and trends that humans aren’t looking for. As more viewers flock to FAST services, they will provide ever-increasing data on what cost-conscious consumers are looking for and how streaming services can keep them engaged. But much of this information will remain hidden to companies that don’t invest in the tech tools to see it.
In 2023, there’s a natural opportunity for SVODs to incorporate FAST into their programming. Smart SVODs will be carving out the needed money for that investment — and will be happy to see the audience, advertising, and revenue growth that come with it.
Mark Moeder is CEO of SymphonyAI Media
