Ad-supported streaming set to disrupt subscription streaming and crush cable

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Most investors understand that the traditional cable TV industry is dying thanks to streaming alternatives such as Netflix (NASDAQ: NFLX) and Walt disney (NYSE: DIS), which owns Hulu and Disney +. What most investors may not yet fully appreciate, however, is how much this paradigm shift has accelerated in 2020. This year is shaping up to be the proverbial tipping point for corporate names. linear cables like Comcast‘s (NASDAQ: CMCSA) Xfinity and charter‘s (NASDAQ: CHTR) Spectrum cable television companies.

The funny thing is, it’s not subscription services that are causing all the damage to the cable industry lately. Ad-supported video alternatives are gaining momentum. Two new nuggets of data revealed this week underscore this idea.

Image source: Getty Images.

Consumers flock to AVOD

Free ad-supported video on demand (or AVOD) is not exactly a new idea. Fox‘s (NASDAQ: FOX) (NASDAQ: FOXA) Tubi has been around since 2014. Pluto TV, now owned by ViacomCBS (NASDAQ: VIAC) (NASDAQ: VIAC.A), has been around since 2013. Both are respected, but neither has changed the game. Consumers may have viewed these free video platforms from a “get what you pay for” perspective.

But it would be shortsighted to suggest that the AVOD industry hasn’t changed dramatically over the past year and this year.

Yes, the advent of Peacock from Comcast contributes to this development with its tariff twist. While two levels of its service require a small monthly payment of $ 9.99 or $ 4.99, the third level which shows ads while programming is completely free. Observers don’t seem to care either. CEO Brian Roberts told the Goldman Sachs Communacopia conference earlier this week that Peacock now has 15 million members, compared to only 10 million at the end of July. Streaming service aggregator Reelgood estimates that around 90% of the content streamed through Peacock is consumed by free tier users. True to their word, TV fans don’t shy away from the occasional TV commercial.

However, Peacock isn’t the only free streaming service to add a lot of viewers in a short period of time. Tubi also reported this week that its membership now stands at 33 million regular monthly viewers, up 65% year-over-year, and well up from 25 million at the end of 2019. These people watch a lot more free ad supported Tubi. content too. TV Tubi’s 200 million hours of streaming per month since April is an increase of over 100% from a year ago.

In the same vein, AT&T (NYSE: T) CEO John Stankey confirmed this week that a free, ad-supported version of HBO Max will arrive in early 2021.

In the meantime, nearly 4 million more traditional linear cable customers have cut the cord this year. This rate of cord cutting slowed in the second trimester, possibly because most consumers remained stuck at home in an attempt to avoid exposure to the coronavirus. Even so, some of these consumers are clearly trading in their paid cable service for a free, ad-supported alternative.

I just hit the stride

The dynamics are nothing new. Netflix and other paid streaming brands like Hulu and Disney + began to eat into the customer base of the US cable TV industry starting in 2013. Ad-supported video-on-demand options have failed. still eliminated paid streaming subscribers, but their operators did. not yet seriously tried to do so. But that’s what’s new for 2020 and beyond: Donors are starting to take AVOD seriously. Comcast’s ad management tool, called A platform, was largely built from scratch with Peacock in mind; One Platform is a ‘data-driven cross-platform campaign optimized for unduplicated reach across corporate linear, digital and OTT videos. [over the top television] imprint, ”the company said in a statement.

Translation: advertisers will be able to do more with data collected via streaming that just doesn’t exist with conventional cable alone.

And it’s not just Comcast. In March, AT & T’s advertising unit, Xandr (yes, the one that would be looking to sell now) unveiled its new “data-driven linear television technology”. Earlier this month, Verizon (NYSE: VZ) and Network of dishes (NASDAQ: FLAT) – the name behind Sling TV – has partnered to improve the buying efficiency of connected TV and over-the-top TV ads.

Read between the lines. These media companies Now showing more interest in maximizing the monetization potential of streaming video than ever before. Better monetization potential of a growing number of AVOD viewers means that it finally makes sense to invest more deliberately in the model, which in turn increases audiences, which increases ad revenue, etc. Peacock and Tubi alone have added nearly 30 million new viewers to each other in just a few months. You just wait for these media companies to really pull up their sleeves.

At the end of the line ? That’s the tipping point, which is tough news for SVOD names like Netflix and Hulu, but terrible news for cable companies like Charter, and even Comcast’s Xfinity cable company. Tubi CEO Farhad Massoudi arguably summed it up best, saying in a statement: “Tubi’s increased viewership is a testament to the fact that 2020 will become the year of AVOD.”

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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