Why Free Beats Fee: The Rise of Ad-Supported Streaming on CTV

Everyone loves free stuff. It’s simple: free beats fee - a paradigm that has helped shape the meteoric rise of connected TV (CTV) and empowered free ad-supported streaming TV (FAST) channels to gain significant traction. Despite the continued dominance of the top streaming services, no cost FAST channels are growing in popularity. For example, Xumo, a leading FAST channel, saw a 48% increase in its audience over 15 months. So, is this current landscape simply a product of a freebie-loving consumer? The panoramic view suggests it is a bit more complex. Rather than a result of one factor, this current ecosystem where FAST channels are vying to lead the CTV charge stems from the steady confluence of consumer behavior, demographics and trends. 

So how did it all happen?

The rise in popularity of content on over-the-top (OTT) services has fueled the CTV fire. In response to demand, several channels developed custom applications for smart TVs to offer streaming services, and many introduced new content with varied genres to cater to a broad range of viewers. With these innovations, smart TVs were able to offer consumers a seamless way to access a plethora of services and desired content on the largest screen, making them more appealing than traditional cable or satellite TV. The result? Smart TV ownership in the U.S. surged from 65% in 2020 to 77% in 2023, and the use of streaming apps increased from 48% to 66% in the same period, reflecting a major shift toward CTV. 

The CTV landscape, with its extensive platforms and content offerings, presents a large and diverse audience makeup. Across generations, streaming is now the dominant way to watch TV, but age groups and cultures vary in their viewing habits. For instance, Millennials lead in streaming consumption, while Boomers and Gen X prefer traditional TV. Platforms like Disney+ attract 67% of viewers under 35, while Discovery+ appeals to 31% of viewers ages 35-49. Also - minority audiences have a robust presence within CTV, notably thriving across FAST channels. The Hispanic audience showed a +46% YoY increase in CTV hours across FAST channels. Similarly, the African American audience exhibited a 25% and 22% increase with Tubi and Pluto, respectively. The data is clear: CTV boasts a large audience and offers powerful targeting opportunities - with FAST channels capturing a noteworthy percentage of sought-after minority audiences.

Consumers are grappling with the challenges of escalating costs and the growing complexity of offerings and services in CTV. A resounding 88% of surveyed consumers expressed the perception that the cost of TV is getting more expensive. Similarly, a compelling 81% of respondents acknowledged the existence of a saturation point, agreeing that there’s a limit to the number of sources of entertainment they need. This dual sentiment underscores the delicate equilibrium consumers seek in balancing cost-effectiveness, simplicity, and the allure of ever-evolving CTV offerings. This notion of keeping what’s free and cutting out channels that drain funds - at any level - is directly linked to the increased time spent on FAST channels. For advertisers, no cost channels present an opportunity to capture a leaned-in and loyal audience who have no reason to cancel or suspend their services.

70% of consumers prefer ad-supported models, and 58% of viewers expressed receptiveness to no-cost subscription in exchange for ads. Clearly, consumers believe advertisements are an acceptable trade-off for free content. Considered an integral part of the overall cost evaluation, advertisements help drive channel retention by taking the cost consideration out of the equation and as a result, pave the way for FAST channels.

Bottomline, the extensive adoption of CTV across generations and cultures combined with prevailing consumer trends has set the stage for the rapid growth of FAST channels and underscores the strategic importance of a diversified advertising strategy. A comprehensive plan is a necessity for advertisers looking to drive incremental performance and enhance consumer engagement. This is where Kargo comes in. Kargo has direct integrations into the top FAST platforms, allowing brands to effectively capitalize on the dynamic nature of CTV. Boost your CTV strategy with Kargo! Learn more.

Take a Deeper Dive into the Data - Full Research Report Here!

This research is an encapsulation of the findings shared from the American Research Foundation’s OTT 2023 conference. Data courtesy of the American Research Foundations OTT 2023 Conference: HERE