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As is inevitable when a trend really starts taking hold, naysayers are coming out of the woodwork about cordcutting. Recently, opinion articles stating that “you won’t save money cordcutting” have become popular. The justification is that consumers must now subscribe to so many streaming services it costs more than cable. Contrary to those opinions, the data shows that most people who cut the cord pick and choose carefully, saving money by adding on free or low-cost services to build a complete solution.
According to Leichtman Research Group, most consumers (69%) have access to Netflix, Amazon Prime, or Hulu, and many (43%) watch more than one service. The consulting firm Deloitte found that 55% of U.S. households subscribe to a streaming service, but the average subscriber paid for three services. The reason that the statistics from the reputable firms aren’t clear cut isn’t from bad polling – the difference is that not all viewers are paying for subscriptions. It turns out that account sharing muddies the numbers a bit.
Many consumers subscribe to Netflix even if they have cable, or have more than one subscription, so there is a lot of overlap in statistics. Homes with access to broadband are more likely to cut the cord since high-speed internet is required to stream reliably. The Diffusion Group found that 8% of surveyed broadband households use a skinny bundle service like SlingTV or YouTube TV. About 74% of consumers report that they subscribe to traditional pay-TV services like cable or satellite, while 76% use a streaming service like Netflix, Amazon Prime, or Hulu. It doesn’t add up. Streaming allows consumers to choose what channels they want. Unlike cable, you’re not forced to buy all of the channels whether you watch them or not. Consumers can choose the most important channels and rotate through the others to catch up on back episodes. So in a year, they might have short-term subscriptions to several streaming services, but not all at once.
Some industry experts expect that the new streaming services from Warner, Apple, and Disney will oversaturate the consumer market. In a time where so many consumers subscribe to Netflix, Hulu, and Amazon Prime is there room for every premium cable channel like HBO, Showtime, and Starz to stream exclusive content? Throw in ESPN+, CBS All Access, CuriosityStream, and AcornTV and you start to understand the doomsday prediction that the entire market will implode in Flixpocalypse.
It’s hard to believe, but Netflix has fewer than 1% of the movies and TV shows on the market. The streaming giant focuses on original programming and high-profile licensed shows, leaving a ton of older movies and shows up for grabs by smaller services.
As the subscription business becomes more crowded, entertainment companies are jumping on ad-supported video. People can only budget enough for a limited number of subscriptions, but the market for ad-supported streaming is wide open. With the glut of choices and limited market share for subscriptions, companies are considering ads as an alternative revenue source.
We’ll continue to see streaming services adapt to the market as consumer entertainment transforms. For example, late last year Hulu dropped the price of the lowest ad-supported tier at the same time the company raised the price of Hulu + Live TV. Mega-broadcaster Sinclair launched a free streaming service called Stirr, and Amazon began streaming old shows like Heroes, The Bachelor and a bunch of old movies through iMDb Freedive.
Crackle has high name recognition among Roku users. Backed by Sony, the service mostly features TV shows and movies from the 1980s and 1990s. Vudu is also recognizable as WalMart’s online rental service, but it also boasts a hefty catalog of thousands of older shows and movies supported by advertising.
Ad-supported services like Pluto, Xumo, and Tubi TV are grabbing up popular reruns that once showed on cable. While Pluto and Xumo curate new content from web sources into channel selections, Tubi TV has a video library of almost 7,000 titles with amusing categories like, “Not on Netflix.” Another contender in the space is FilmRise, which shows lesser-known movies and popular classic TV shows like Third Rock from the Sun.
The Roku Channel is fairly new, but it’s rapidly expanding with a mix of older and current TV shows and films. Yahoo! View is a convenient service that shows the last five episodes of new TV series online for free. Like some of Hulu’s agreements, ABC, NBC, and Fox shows activate eight days after the original air date and roll out when a new episode debuts.
Ad-supported will never be as big as Netflix
It’s unlikely that ad-supported services will outgrow or endanger major subscription services like Netflix. But that’s not the point. Streaming free entertainment remains a viable business, especially with advances in ad targeting. Netflix reportedly paid $110 million to license Friends, so it’s not unreasonable to assume it can attract a decent viewership once it shifts to an ad-supported platform.
Consumers can only support so many subscriptions simultaneously. The winners are those with established market share and enough original content to justify the cost. If Hulu and Netflix lose enough content, it’s possible viewers will jettison to smaller niche services. A more likely scenario is that the market will self-correct by bundling services for a discount. Withholding premium content like Star Trek and Twilight Zone will only work for so long before CBS abandons the practice in favor of a wider audience.
Ad-supported TV is self-sustaining
It’s not as glamorous as running an Emmy Award-winning network with original content, but free TV is an inexpensive way to boost revenue. Companies have access to a large library of content that is sitting idle in the wake of canceled cable subscriptions. It only makes sense to monetize it and get some breathing room from chasing subscribers.
As a consumer, these free networks are the perfect supplement to your paid subscriptions. Take advantage of the commercial breaks to indulge in a nostalgic trip to the kitchen to make popcorn, or channel surf until it resumes. It’s hard to argue with a free service that shows your old favorites.
Megan Southard is a writer, mom, technology enthusiast, and movie junkie. She dreads the day her kids have to explain gadgets to her and is old enough to say, "I was the remote for our TV growing up."
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