Eric Hanselman

Welcome to Next in Tech an S&P Global Market Intelligence podcast where the world of emerging tech lives. I'm your host, Eric Hanselman, Chief Analyst for Technology, Media and Telecom at S&P Global Market Intelligence. And today, we're going to be talking about FAST, Free, Ad-Supported Television. And to discuss that, I've got returning guests Michail Chandakas and Seth Shafer with me. Welcome back to the podcast to you both.

Seth Shafer

Thank you, Eric. Happy to be here.

Michail Chandakas

Yes, thanks for having us again.

Question and Answer

Eric Hanselman

Well, it's great to have you back. And we're in the midst of, I guess, a bit more than the usual media turmoil of late with everything that's been going on in the markets. But why don't we start talking about how you define free ad-supported television. It seems like that's the traditional way in which you've been thinking about how media got delivered back in the day, but it's happening now in a market that's a little different.

Seth Shafer

It's a good place to start, and it's sort of a collision of acronyms and terms we use and things like that. So obviously, big trends, sort of FAST, free ad-supported television, I see lots of headlines about that in the TMT sector. Really, we try to draw kind of a line between -- and it sounds silly to say traditional AVOD or traditional ad-supported online video, but that's kind of where we are.

So when we talk about traditional kind of AVOD, that's more like YouTube sort of go to a service, watch a TV show, watch user-generated content, watch a movie, see ads periodically. It's up to the user to sort of know where they're going or land on the page and navigate their way around and find things.

When we talk about FAST, we're kind of carving out like a new breed of service. So the FAST services, the big ones in the U.S. like Pluto TV, Tubi, Freevee, Roku Channel, they've really taken off because they offer that traditional AVOD experience where you can browse around and find thousands and thousands of movies and TV shows to watch.

But then you can also sort of tap into what's more kind of traditional TV experience, where you have a programming guide, you have programs that are showing on different channels, where it's running, you can browse through channels, you can click something to watch and you're watching it kind of in real time as that programming unfolds for you.

So that's kind of how we define FAST, like it has to have that channel component as well as the on-demand component. So I'm getting in the weeds, a lot of times, it's difficult. We have to set our parameters at the beginning. So things like YouTube, really through this conversation, even though it's free and it's "TV" you don't really see YouTube as a FAST platform, or as a Tubi or Pluto TV, that's really kind of the world that we're talking about here with FAST.

Eric Hanselman

Man, we are back into all of those typical cycles of tech, which the idea of thinking about YouTube as the legacy technology and FAST starting to displace it. Hey, the pendulum keeps swinging back and forth, right?

Seth Shafer

Yes, it's exploding universe theory, everything explodes and contracts and explodes again and contracts. So I don't know where we are in that phase. But I think behind it, the interesting angle with FAST is, it's less dominated.

When we look at SVOD kind of streaming video, we really see Netflix, Disney dominating. We have the big U.S. media companies have planted their flags there. Even when we go globally and look at international markets, those big media companies for subscription, streaming video, control 60%, 70%, 80% of market share in a lot of markets.

The interesting thing about FAST is we don't really have those incumbents like that. So it's a more wide open race. It's more local broadcasters, kind of media owners in international markets can compete more easily because of the local content they can tap into you.

So I won't say that Michail and I both cover FAST as well as subscription video, SVOD is a little bit of a mature market, FAST is a little bit more wide open. We're sort of seeing it evolve more in real time with a lot of jostling around and a lot of more entries in the market right now.

Eric Hanselman

And Michail, do you have thoughts on sort of where that fits? Because you take a look at primarily European markets. So how is that differing and what you're seeing?

Michail Chandakas

Yes. So the situation in Europe is a bit different compared to the U.S. In terms of revenue, I would say the European market is less than 1/10 of the U.S. We only have like a handful of pure FAST platforms operating across Europe, such as Pluto TV, Samsung TV+, LG channels and a few others.

These platforms have, of course, limited reach. And the second reason that FAST in Europe is quite limited at this stage is that free-tier linear TV is still doing well. Consumers in most markets would rather watch their local news or their local talk shows compared to streaming a FAST channel that's playing old Baywatch episodes 24/7.

Eric Hanselman

Limited appeal on that side, but well, I guess that sort of gets back into the point that Seth you're making, there is still this strong demand for regional content. And a lot of that gets driven by what those viewership populations look like. What are their personas and what are their viewing preferences.

Seth Shafer

Yes, I think definitely. I think it's an interesting model as well because FAST when you get outside of the traditional TV world in which you have an idea for a network, you get funding, you use secure programming, there's all of these built-in costs to launching traditional kind of TV network, whether that's in the U.S. or Europe or wherever.

And so always in the back of your mind, does it have mass appeal of some sort? Not that you can't have specialty programming, but you're basically having to guarantee you can reach X number of people in Y years to make money and make all this work.

With FAST, I mean, the Baywatch, it’s funny, the example, but that's been a unique wrinkle that FAST added because there's not really the same cost in launching a FAST channel. So for either a platform owner or a content owner, when they're looking to launch these FAST channels, it's pretty quick, easy to do, very little cost involved.

So there's a lot of experimentation around what kind of programming works. And to Michail's point and your point, it's not going to be the same recipe around the world. So what works in the U.S. may not work in Europe, it may not work in APAC and things like that. But it's definitely interesting that there's kind of room for single IP is what we're calling that. So an entire channel for Baywatch, an entire channel for Dr. Quinn, Medicine Woman, an entire channel for Painting with Bob Ross as well as the ability to compile things around genres, you can have a Pluto TV drama channel where you just get all dramas.

Some networks are moving towards basically sort of repackaging their linear network content into a FAST offering and things like that. So there's a lot of different things going on, some of the services, Roku Channel, just announced a deal for bringing live sports programming for the first time to Roku Channel. So they're partnering with Paramount to bring Formula E Electric Car racing to the platform.

So it's likely seen sort of with the world of SVOD, even that programming like news and sports, that seem like it would stay kind of in the U.S. at least in the pay-TV world. Some of these FAST platforms are dabbling in a lot of different areas. And really, the goal is where we started of finding that mix.

It's one thing to get someone to try out this channel for the first time. but to really make money and to kind of move the needle for these media owners and platform operators, it needs to not be someone who checks it out for a novelty and watches for half an hour and never comes back.

They're trying to build up these engaged audiences that work in these FAST platforms, they watch 10, 15, 20 hours a month at these platforms, which kind of makes it all work as far as the ad revenue making it worthwhile.

Eric Hanselman

Well, it sounds like that you wind up then getting in a situation which given that it's still relatively early, that experimentation is really a big part of trying to figure out how you really start to build the market, how you actually retain those users. If in fact dedicated channels have only nominal cost to pick up, hey, if it turns out, there's a large population that's really interested in those friendly little clouds and oil painting, hey, Maybe that's a draw, right?

Seth Shafer

It's an interesting thing, too, because we look across these platforms, and we're talking about the big ones that Michail and I have mentioned. But in the U.S., at least, there's 20-plus different platforms, and they're all looking for ways to differentiate.

Obviously, content is a big one. But we're seeing kind of an interesting trend, sort of early on in the market, it was sort of a race. The prestige number was how many channels you had, that was how they were trying to draw people in with, come over to our service, we have 200 channels, come over here, we have 300 channels. And we've actually seen that get dialed back a little bit recently.

So some of the platforms are trimming their channel counts. And they're sort of recognizing that. That is a marketing thing to hang your hat on. But at the end of the day, are they just repeating kind of some of the complaints about the traditional Pay-TV package of I'm paying for 200 channels, and I'll watch 4 of them. That's not a satisfying experience for a lot of consumers.

Eric Hanselman

It's the old cable story of 57 channels and nothing on, right?

Michail Chandakas

Yes. And essentially, for the viewer, the experience is similar to browsing through the EPG of your multi-channel subscription. You don't get the recommendations you get when you're watching Netflix, for example.

Eric Hanselman

That's an interesting point. And the fact that you have this huge catalog and yet one of the challenges to enhance viewership is being able to find it all.

Michail Chandakas

Yes, exactly. But of course, the benefits are for the advertiser, the benefits of targeting the viewer compared to linear TV.

Eric Hanselman

If you can quantify what the value is of that Baywatch dedicated viewership, that actually raises an interesting point, which is that, it does mean that you've got the option of pretty narrow targeted, if you focus your content that way. And if it turns out that you've got advertisers of lifeguard supplies, maybe the Baywatch channel is perfect medium for them. I guess, actually, do you see that level of specificity there? Or is that still an aspect of the market that has yet to develop?

Seth Shafer

It's like we're turning this into the Baywatch episode. I'm not sure what media company owns the rights to Baywatch. I think they owe something for this, but the targeting aspect of it, Michail is spot on there. When we talk about the shift of video content to digital platforms whatever they are, whether we're talking about Netflix getting in advertising this and that. Really, that's what advertisers are after, is just being able to target across any sort of where they want to target. Whether it's, I think, possibly your life guard example is a little too narrow, like I'm not sure there's enough advertisers.

Eric Hanselman

Not a fully developed market segment yet.

Seth Shafer

Yes, that's a little bit tricky. But generally speaking, that's where these advertising markets are headed with the hopes that you reach audiences to being able to buy specific audience specific channels, things like that.

It is still fragmented, though. So that's the challenge. We heard this early on with digital advertising in general and that advertisers don't want to have to go to this platform and reach X number of people and then go to another platform and do a buy there and go to a third platform and do a buy there.

So when we talk about in the U.S., just using round numbers, the big FAST platforms in the U.S. are still reaching around 15, 20 million viewers every month in total. So when your total pie is only, I say only, it's a big audience, but compared to the reach of a YouTube, compared to the reach of even Pay-TV in some situations, that's not the biggest pool to dip into.

So it's still early, I think, to really target around individual kind of audiences the way we're talking about, but that's definitely the long-term appeal. And part of it, this is a whole discussion on its own, but part of what's making the FAST model work is that these platforms are able to get pretty decent CPMs when they go to advertisers.

So they're able to monetize their inventory pretty well, and that's giving them money to kind of put back in the content. So that virtuous cycle of -- in the past, one of the problems with free ad-supported video platforms was that the CPMs just weren't that high. So it became kind of this dusty window that you could monetize your video content in, you wouldn't get much for it, but you would get something.

So these platforms are kind of the home for really old dated TV series and movies that no one was super excited about watching. That's changing a little bit. So the CPMs are better, a lot of viewers are watching on connected TVs, the platforms get pretty good rates for the ad inventory. So it opens up some possibilities there.

Eric Hanselman

Is that something where that starts to lead to better content creation in these channels? Are they still trying to manage to get their head above water until they start to do that? I mean right now, we seem to be in this period in which content creation, especially now in the states with the writer strike, there's a lot of thought about what's going to happen with content. There are a lot of distributors that are starting to pull back in terms of how they're spending on content creation, that part of the market seems to be a little unsettled.

Seth Shafer

It's a really good point. And there's been more announcements of original programming coming from the FAST platforms. And some people within the industry are starting to question again, this cycle of repeating the mistakes that you just made like in the Pay-TV traditional linear TV world of are we suddenly going to see these media companies over investing in original content for these FAST platforms, is a FAST platform ever going to be the conduit for something like Game of Thrones with the budget thrown at that.

And I don't think -- again, just my 2 cents, but it seems like the media companies are in belt-tightening mode now. So I would be really surprised that they would suddenly all overspend and suddenly start investing billions of dollars in dramas, high-profile tentpole sort of things for the FAST services. But I do think, especially for the major media owners that have a FAST platform.

So in the U.S., we're really talking about Paramount with Pluto TV, Fox with Tubi. They can kind of draw on IP from other parts of obviously, their business. So the trend seems to be for improved content on these FAST channels because they're able to sort of monetize at a relatively good rate. But I don't think it will ever get to the point that we saw with sort of the streaming wars on the subscription video side, with everyone pulling back into walled gardens and investing billions and billions.

And now we seem to be kind of unwinding that for some of them, just sort of admitting that really for a big media company the older model of having your own service, monetizing through that service, sort of serving your super fans, but then also licensing some content to streaming rivals like Netflix and Amazon, being able to window that content through your free ad-supported platforms and things like that. That seems to be where we're headed back to a world where content isn't sort of siloed off, walled off as much.

Eric Hanselman

You've got different avenues and different paths.

Michail Chandakas

And just to add to what Seth said, FAST revenues in Europe according to our estimates is around 2% to 3% of the SVOD revenues. So unless that figure goes up significantly, yes, I would agree that they wouldn't throw in money at the moment or any time soon into originals.

Eric Hanselman

Oh, wow. So yes, so still a very small percentage, interesting, yes, because that means that in terms of both how they're able to compete for content, what their capability is to be able to source that from an original perspective is certainly a little more challenging, I guess, shall we say.

Michail Chandakas

Exactly.

Eric Hanselman

Well, Seth, you mentioned sports. And if you think about things that are coming out of the linear realm, is this scenario where you see that potentially becoming a bigger part of FAST. I mean especially with -- can't talk about other markets, semi, the regional sports networks and all the craziness that's going on there. Is that an angle or did you see focus there? Or is that something that's still way too far out?

Seth Shafer

Yes. It's interesting. We've seen -- I feel like I'm talking about the same services, but it's sort of applicable. The FAST platforms in the U.S. with corporate owners that have media rights and sports primarily, again, Paramount with Pluto and Fox with Tubi. They've been really judicious.

Paramount has moved obviously some of its sports rights to Paramount Plus. It's a big draw of that subscription service. But they've been pretty judicious about what they bring to the FAST platforms. So what you do see, though, on the FAST platforms is a lot of, obviously, not mainstream sports.

So the big sports, the major sports, they are tied up in these long-term really lucrative sports rights deals that primarily go to linear television. I don't see a path for that really moving to the FAST platforms anytime soon. But you do see a lot of -- again, like pickleball, things like that. The sports around the fringes that don't necessarily command the same ability to get these lucrative Pay-TV deals. There's a lot of programming like that, that's moved to the FAST channels really quickly.

Eric Hanselman

You mentioned you won and that, hey, here you've got basically a new sport whose rights have been locked up that I guess that's an avenue for.

Seth Shafer

Yes. And it makes a lot of sense, I think, when -- especially with Roku, they've sort of moved in a model to kind of building content hubs where they can. So they can't tap into the same sort of IP, the Paramount or Warner Bros or Disney can. But they can with sort of the device angle, they have devices in a lot of homes in the U.S. and around the world now and being able to build kind of content areas.

And I think an important part of this is sort of implied for me because I live in this data. But really, we're talking about supplementing what consumers are already doing and watching when it comes to video. There's very few households out there, I think, that are entirely replacing linear TV and subscription video with a FAST service, and it's really borne out in our survey data.

It's a lot of the respondents when we go out to survey, who's using these FAST platforms, in a lot of cases, they're actually Pay-TV subscribers. They have a lot of streaming video services. They're really kind of omnivores, who like to watch a lot of stuff and they're savvy enough to figure out where to go get it. And so if that's Formula E at Roku Channel, they build that into kind of their slate of places that they go to for video content.

So yes, I think with sports, a long-winded way of answering your question, but I think FAST is an interesting avenue there because it's a quick way to get programming out. It's amenable to content owners and leagues that may not have the same clout. And it can really be customized. So what Michail is going to see in the FAST on his side could look a little more European as far as mix of sports than what might flow to sort of the FAST platforms in the U.S. and APAC and other regions as well.

Eric Hanselman

So something which you can particularly target, again, given that nominal cost of kicking up another channel. Where do you see this going long term? It sounds like this is one of many, not necessarily going to dominate or displace or becoming a key part of the entire entertainment package that individual viewers are consuming?

Seth Shafer

Yes. I think Michail has talked about kind of the revenue comparison there, Europe versus U.S. Another important point here is just to remember that we're talking about the future. And definitely, I think we see FAST growing.

Like obviously, it's kind of having its moment now. But our last for the U.S., our revenue projections were close to $4 billion in ad revenues for the major FAST platforms in 2022. Pluto TV is already generating over $1 billion a year in ad revenue. So it's setting kind of the stage, these aren't far off things that may develop in 5 years and be significant revenues.

So we're kind of already there as far as generating billions in revenues in the U.S. But I think long term, if the pandemic has taught me anything, it's to be careful about making bold predictions about where things are going as far as market sizes and stuff. But obviously, just speaking for the U.S., Michail can kind of chime in for Europe after I'm done. But for the U.S. Pay-TV obviously is in decline, that's everywhere. We see that cord cutting, but it's still a big business.

Our projections at Kagan for the end of 2023, still 56 million Pay-TV households in the U.S. So that's more than half where it was 10 years ago, but that's still a big number. So for the U.S., still growth for FAST, we're probably past explosive, early day.

Industry revenue is growing 100%, 150% year-over-year. But obviously, I think an important window to kind of sit beside Pay-TV as a channel for content owners, network ownership monetize, FAST, SVOD, all of these kind of finding their own place in the ecosystem. What do you think, Michail, your take on Europe as big an impact, less.

Michail Chandakas

Yes. Well, cord-cutting in Europe is not really having an impact. I would say Pay-TV subscribers have been relatively stable over the last few years. And that's one of the reasons that we see FAST operators starting to partner with Pay-TV providers and Pluto TV's. One recent example, recently did a deal with Magenta TV in Germany and Virgin in the U.K. So now Pay-TV subscribers of Magenta TV and Virgin can have direct access to Pluto TV.

Eric Hanselman

Interesting. So it actually gets bundled in as part of one more piece of the Pay-TV puzzle, that's interesting.

Michail Chandakas

Exactly. And that's something SVOD providers have been doing like since 2016, essentially.

Eric Hanselman

You're making the point that it's this question of, from a viewer perspective, how do you find all of these various choices? How do you become aware of them? But hey, if the FAST offerings get bundled in with Pay-TV offerings, maybe over time, those folks who are really focused on the Bob Ross Channel start to sort of say, "Well, I don't have to pay you for the full bundle, I can just get Bob Ross in the FAST package?" Who knows? Maybe that's an entree in certain markets.

Seth Shafer

It's an interesting point, yes. I mean in the U.S. market, the Pay-TV market, we've seen the big operators look for various, I won't say off-ramps, but how do they, technology trends and still maintain revenues.

And for the Comcasts and Charters of the world, really more and more, it's been hanging on to broadband subscribers, finding ways to keep people in your ecosystem. So they may drop out of your video product and cut the video cord, but the important thing is, can you keep them on the broadband side? And then increasingly for those 2 operators as well, it's, can you sell them mobile phone service as well.

So in that world, like Michail mentioned, the Pay-TV world is trying to pivot as well and keep people in the ecosystem and FAST channels are an obvious way. I think part of competitive capitalist side of us looks at that and says, why are you partnering with someone trying to disrupt your entire model, but I think the reality that you mentioned is being flexible and video is actually a pretty low-margin product for these sort of diversified operators that do video and broadband and now wireless.

So I think that makes sense. And we're even seeing in the U.S. with some of the virtual multichannel. So YouTube TV, Fubo, this new breed of Pay-TV that's all delivered virtually, that gives you channel package. And they're also directly incorporating FAST channels into their pay networks that you get with these as well.

So like Michail mentioned, it's not only happening kind of on a set-top box level of these things being available alongside stuff, but it's actually being woven into existing network programming guides for some of the virtual multichannel services, too.

Eric Hanselman

That same old challenge to manage churn to be able to hang on to viewers to be able to get towards this newfangled thing people have talked about called profitability and actually try and move these businesses forward. It's an interesting place to be.

Seth Shafer

And you mentioned the profitability word, not to go on too far with that, but it -- again, in all of the excitement over FAST, I think I said at the beginning, but far not going to be a FAST bear, but I think it's important to sprinkle in a little bearishness with all the bullishness around FAST, but these services are not wildly profitable.

We've talked about success in kind of ramping up and growing audience and obviously, spreading around the world and expanding and exact numbers are hard to come by. So not saying that they're unprofitable. The big services are probably close to profitability and could be profitable if they wanted to decrease spend and be profitable. But these are not spinning off huge amounts of free cash flow and then really boosting kind of overall efforts of these media companies. They're still very much and sort of invest, grow out these FAST platforms for the future.

Eric Hanselman

The content may not be expensive, but yet you've still got infrastructure to run. And now we're in a situation which who knew markets are actually worried about making money, surprise, surprise.

Seth Shafer

That's an amazing one, Michail and I talk about a lot casually of just how things change so quickly. The pendulum swings really quickly kind of in the media space between where we were 18 months ago, even on bold plans of all of these major media owners challenging Netflix globally for forever and investing all these billions to suddenly Warner Bros. and Disney just pulling, mothballing content entirely, just not cutting back on investing in new content, but completely pulling programming from the streaming library to sort of, I won't say, balance to books, but to sort of present.

Eric Hanselman

Yes, to be able to get to a point at which that content that's not making me money, I'm not going to keep paying for it crazy times.

Well, this has been great. Thanks to the both of you. I appreciate all the perspectives. And I guess we'll have to see where this all shakes out.

Michail Chandakas

Thanks for having me, it was very interesting.

Seth Shafer

Thank you, Eric. It's always fun to sort of check casually about these things instead of staring at spreadsheets. So thank you very much.

Eric Hanselman

And that is it for this episode of Next in Tech. Thanks to our audience for staying with us.