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Does Ad-Supported Streaming Actually Cost You More?

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People are watching more ad-supported content, and there's research that says those ads work in getting consumers to purchase the goods and services advertised. So it's possible that ad-based streaming may cost you more in the long run.

FAST (free ad-supported streaming TV) viewing is growing, in part because the services are getting better at ad integration and building content libraries that appeal to consumers, according to Parks Associates. The firm's latest research shows that households watching ad-supported streaming increased from 25% in Q1 2020 to 31% in Q1 2021. Along with this, advertising dollars are transitioning from traditional pay TV to online video. Some of these services have both free and subscription tiers, and there's nothing shareholders like more than when they can generate revenue from both ads and subscriptions, says Paul Erickson, senior analyst for consumer technologies at Parks Associates.

We know that people who watch ad-supported content are paying with their attention, but research has shown that ad-supported viewers are actually buying things they see in the ads. OK, you may not go out and buy a new car on impulse, but what about that beer or laundry detergent?

"We actually see that roughly a third of heavy users of ad-based services often click on and subsequently purchase items," Erickson says. "Ad content does create a thought process and reaction. It gets through to people even if they will tell you that they don't really like ads, but something in there triggered a thought process that led to conversion to buying something." So, in reality, your FAST viewing may not be free at all.

Ad aversion is more common among the users who are regular consumers of ad-supported content. "We see 41% of ad-based users don't like watching video programming with ads, and 40% have expressed dissatisfaction with the frequency of those ads," Erickson says. "But the free factor is the overriding element that still supports the growth of the services. Even with this sentiment in the background, well over 30% of users said that they don't mind watching ads as long as the content comes free.

"From what we've researched, we found essentially that ad-based OTT users in general have indicated a strong interest in upgrading to a paid ad-free version of the service," Erickson continues. "Those that are using the service a lot are more likely to be open to paying for a paid version."

So, in other words, FAST services are getting consumers hooked for free and then moving them to the next level. "Well over half of viewers are willing to pay a monthly fee for ad-free access to the content they watch. Depending on the price, it could be a lot more than half of viewers. Nearly 80% would pay a $1.99 monthly fee. Well over half would pay a $5.99 monthly fee," Erickson says.

Smart TVs are now in 56% of U.S. broadband households. There's been a consistent rise in household penetration for smart TVs, and you'll find it fairly hard to buy one that isn't able to connect to the internet. "A lot of these smart TV manufacturers are either rolling [out] their own free ad-supported services—LG Channels, Vizio WatchFree+, Samsung TV Plus—or they're partnering if they don't have the resources," Erickson says. "I would say that the popularity of smart TVs and then free ad-supported services is becoming a checkbox item that TV manufacturers have to include to stay competitive with their peers in the market."

FAST services are going to be a more common and a more substantive part of the OTT landscape because they're becoming more integrated and easily accessible to the average consumer. But in the long run, maybe it's worth subscribing for content if you want to save money.

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