Just a few years ago, anyone calling themselves a cord-cutter would say advertising was for cable and other dinosaurs. That isn’t true anymore. Ad-supported options are the fastest-growing sectors in the streaming industry, and while that’s good news for some streamers, others should be worried.

In this issue:

• On-demand and live TV subscriber growth levels off

• Cheap-with-ads opens new markets

• People actually like free-with-ads

On-demand and live TV streamers show flattening growth

Streaming surged during the pandemic. Global streaming subscriptions worldwide jumped to 1.1 billion in 2020. Of course, though, this wasn’t going to last for very long. On-demand streaming subscriptions grew 14% in 2022, down from 28% a year earlier. One reason for the slow-down: more than 100 million cancellations in 2022.

The situation was even worse for the live TV streaming services. They only added 370,000 subscribers, down from nearly 900,000 new signups in 2021. Part of this decline in subscriber rates can be chalked up to people resuming a somewhat normal life in the last year. Another part of it stems from the ever-growing costs of streamers coupled with the looming recession.

Cheap with-ads plans attracts new subscribers

The on-demand streamers, led by Netflix, HBO Max, and Disney+, responded to these drops by launching low-cost, ad-supported subscription tiers. The first two streamers had similar results. According to industry analysts at Antena, about 20% of new subscribers joined the low-cost tier within three months of its launch. Disney+ outperformed both at the three-month mark: 36% of new subscribers selected Disney+ Basic.

The good news for streamers? These are new customers, not downgrading premium subscribers. Netflix co-CEO Greg Peters told investment analysts that subscriber growth was “due to incremental subscribers coming into the service because we have a lower price point. We aren’t seeing [as much switching as expected from] subscription plans like premium into our ads plan.” Antena’s numbers confirm it. All three streamers saw fewer than 1% of their premium subscribers drop to the ad-supported plans.

Free-with-ads is the hot trend

The buzziest trend in cord-cutting right now is free ad-supported streaming TV (FAST). These services restore the broadcast model: you get a bunch of ad-supported linear TV channels for free. Industry reports put FAST revenue growing from $4 billion in 2022 to $9 billion by 2026. Three FAST variants emerged over the past year that I call churn-reducers, catalog miners, and big spenders.

Churn-reducers use a FAST plan to reduce the impact of cancellations. People who drop premium subs get to watch the service’s FAST option. Peacock and Sling TV hope people will keep watching for free and renew their subs later.

Catalog miners like Freevee (Amazon/MGM), Pluto (Paramount), Tubi (Fox), and Xumo (Comcast/NBCU) leverage their parent companies’ deep TV and film catalogs to stream loads of programming. Without spending much on content, their ad revenue is very profitable. Paramount executive Jeff Schultz explained to Deadline, “We own the Judge Judy catalog. That’s thousands and thousands of episodes.” And none of it requires expensive production to fill Pluto’s lineup.

Led by Roku, big spenders aren’t so lucky. These services have to get their content from somewhere. So, they either spend a lot on licensing deals with the studios or spend even more on original content. In Roku’s case, it’s both. The company spent $1 billion last year on original content. It also struck major deals with Warner Bros. Discovery, AMC Networks, and others — which couldn’t have been cheap.

Our takeaway: The future is FAST approaching

I’m not sure I’m ready to watch ads again, but a lot of people are. That’s probably good news for the on-demand streamers. People who wouldn’t subscribe before will sign up for the with-ads tier. At the same time, other people may drop to the cheaper tier rather than cancel a premium sub.

The biggest threat, though, is to the live TV streamers. They are just too expensive, and what they offer isn’t that unique. Most of the programming you pay for on YouTube TV isn’t really live — and it has ads.

Sometimes you just want to veg out on the sofa and watch re-runs. Why should you have to pay for that? With FAST, you won’t have to.

The Watchlist

Keep Sister Simone in your prayers as she embarks on a mission to destroy the AI Mrs. Davis, available to stream on Peacock now.

Need something to help beat that afternoon slump? NoonBrew is a delicious tea low in caffeine and filled with superfoods to help boost your energy, focus, sleep, digestion, and more. Get 10 free servings when you place an order!*

Rebooted Beavis and Butt-Head are back with more shenanigans in their second season, streaming on Paramount+ right now.

Evil’s rising and Ash won’t be here to save the day this time. Evil Dead Rise lands on HBO Max, Friday, April 21st.

Your classic boy meets girl story takes a turn when farmer meets secret spy in Ghosted, sleuthing onto Apple TV, Friday, April 21st.

A new version of Dead Ringers finds Rachel Weisz and Rachel Weisz working as gynecologists, coming to Amazon Prime Video, Friday, April 21st.

John Mulaney returns to Netflix in a new special, John Mulaney: Baby J, releasing on Tuesday, April 25th.