Economic Update

Published 08 May 2023

– Over-the-top internet platforms are supplanting traditional television

– Internet access and customer preferences are powering over-the-top platforms

– Emerging markets are embracing free ad-supported television

– While news shows are popular live sport has yet to embrace the new model

As emerging markets expand internet access and younger generations adopt different habits of consuming global media and entertainment, free ad-supported television (FAST) is poised to gain market share as viewers transition from traditional cable, broadcast or satellite television to over-the-top (OTT) internet-based platforms.

US tech giant Google announced two weeks ago that it was seeking to become the leading FAST channel aggregator by adding Tubi, Plex and Haystack News to its existing FAST content from US entertainment company Paramount Global’s Pluto TV. Google TV now offers more than 800 channels in English, Spanish, Portuguese and other European languages.

From 2019 to 2022 FAST revenue grew nearly 20-fold globally and is forecast to triple to $12bn by 2027. The US accounted for 90% of the FAST market in 2022, which was valued at $4bn, and the UK and Canada were also prominent as traditional spillover markets.

Emerging markets are also turning to FAST. Most notably, Brazil and Mexico’s FAST markets are forecast to reach $100m and $93m, respectively, by 2027, according to market research firm Omdia.

Traditional television remains the largest advertising revenue-generating entertainment medium, garnering $231bn in 2021. Revenue for global video games and e-sports – a key sector that Gulf countries are developing as part of their diversification plans – finished a close second at $216bn and is forecast to grow at a 8.5% compound annual growth rate (CAGR) to reach $324bn by 2026, at which time traditional television will sink to $222bn.

Meanwhile, OTT revenue surged in 2021 to $79bn and is set to grow to $114bn by 2026, according to consultancy PwC.

Coming full circle

FAST is a hybrid of traditional television platforms that have scheduled programming and paid advertising and OTT platforms like Netflix or Hulu that offer on-demand entertainment streamed over the internet, as well as cheaper ad-supported video-on-demand (AVoD) subscriptions.

OTT platforms have grown rapidly in recent years, with expansion accelerating during the Covid-19 pandemic as younger people who eschew traditional television – and often televisions themselves – opted for on-demand programming that only requires a computer and internet connection.

In the US in the first quarter of 2023, paid ad-free streaming lost 2.2m subscribers, but AVoD gained 2.6m and FAST 1.7m.

In South-east Asian countries like Indonesia, Malaysia, the Philippines and Vietnam, OTT platforms now account for 34% of users, with over 200m people now streaming such services. Chinese social media app TikTok has begun to reach these markets as well with its OTT service TikTok TV.

Earlier this year, US video platform YouTube began exploring becoming a FAST platform to compete with Roku and Plex, a natural extension of its AVoD services.

The bumpy ride of Netflix over the past year is also illustrative of the powerful shift towards OTT. The streaming service lost 1m subscribers in the second quarter of 2022, mostly from Europe and North America, where it is cracking down on multiple-user accounts. In the first quarter of 2023 it added 1.75m subscribers, 1.46m of whom were in the Asia-Pacific region.

Customers may continue to opt for FAST platforms where they can find more content options without having to search through on-demand accounts. Moreover, many seem willing to watch advertising in exchange for free programming; some 75% of the 5000 FAST users recently surveyed by Paramount found the level of advertising tolerable. Netflix announced in January that it was considering adding a FAST channel offering.

Young and free

While the transition to FAST has yet to occur in Asia, Latin America has embraced the model. This may be due in part to the continent’s proximity to the US. Pluto TV entered Latin America in 2020, rebranded in 2021 as Pluto TV En Español and is now available in 17 Latin American countries.

The expansion of internet connectivity in the region from 57% in 2017 to 69% in 2022 – after a 103% increase in 2010-16 – is bringing an increasing number of customers online, as are the continent’s demographics: Millennial and Gen Z consumers account for 30% of the population.

In the region’s largest economies – Argentina, Brazil, Colombia and Mexico – 70% of respondents have already watched AVoD channels

Brazil and Mexico were two of the first 12 markets to have the option of Netflix’s new AVoD service when it debuted last November.

In Nigeria, AVO TV reached the milestone of 2m downloads in January 2023 and passed Netflix, Amazon Prime and others to become the top OTT platform in the country. AVO TV offers Nollywood movies, live sports, and more than 100 local and international channels through its FAST model and saw its best viewership numbers ever in February during the country’s presidential election. The company plans to expand its offerings to Ghana later this year.

Live sport

The segment of programming that remains wedded to traditional television platforms is sport, which accounts for both the highest television viewership and advertising revenue in developed countries and emerging markets alike.

Last June the professional cricket Indian Premier League sold its television rights for the 2023-27 cycle to Disney-owned Star India for $3.01bn and its digital media rights for the same period to Viacom18, a joint venture between Paramount and India’s TV18 for $3.04bn.

Meanwhile sport leagues generate most of their revenue from television, with football league FIFA earning a record $7.5bn through four years of its commercial deals for the World Cup in Qatar in 2022, of which 56% was from television broadcasting rights.

The FAST format is ideal for news and shows but has yet to break into the live sport market, although some companies are trying to forge inroads into targeted markets. Pluto TV reached a deal with the English Premier League last year to air one match per match day for free, while Paramount+ reached a similar deal to air games on its platform in Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama on an exclusive basis, as well as in Belize and the Dominican Republic on a non-exclusive basis.