John Kosner Spoke with Jessica Toonkel of The Wall Street Journal About YouTube’s Launch of Free Ad-Supported (FAST) Channels

Original Article: The Wall Street Journal, by Jessica Toonkel, January 13th, 2023

YouTube is testing a new hub of free, ad-supported streaming channels, the latest in a series of moves by the company to expand its ambitions in video.

The Alphabet Inc.-owned video platform is in talks with entertainment companies about featuring their shows and movies in the hub of cable-like channels and is testing the concept with a small number of media partners, according to people familiar with the discussions. It could launch the offering more broadly later this year, some of the people said.

YouTube, already a dominant player in online video, is looking to become a go-to destination across various streaming formats and genres. Adding a hub of free, ad-supported streaming TV channels—or “FAST,” as it known in the media industry—would put it in competition with players such as Roku Inc., Paramount Global‘s Pluto TV and Fox Corp.’s Tubi.

The discussions follow other YouTube streaming initiatives, including its recent creation of a marketplace allowing users to sign up for paid streaming services and its deal to pay about $2 billion a year for rights to the National Football League’s Sunday Ticket franchise.

A YouTube spokeswoman said the company is running a small experiment that lets a subset of viewers watch free, ad-supported channels and is using it to gauge viewer interest. “We’re always looking for new ways to provide viewers a central destination to more easily find, watch and share the content that matters most to them,” the spokeswoman said.

YouTube generated $7.1 billion in advertising revenue in the third quarter of last year, 13% of Google’s total ad revenue during the period. The video unit’s ad revenue dropped in the period for the first time since Alphabet started reporting its financial performance in 2020.

Free, ad-supported TV services typically allow users to peruse a list of channels, as they would on cable TV, and dip in and out of content that is already playing. On Pluto TV, for example, viewers can scroll through reruns of shows from “Happy Days” to “South Park” to “This Old House”; rival Tubi also offers a range of fare, such as Samuel Goldwyn Classics, sports highlights and news programs such as Dateline NBC episodes.

It is a crowded but fast-growing area of the streaming business, with more than 20 free ad-supported TV platforms in the U.S., according to S&P Global Market Intelligence. The data provider expects ad revenue from that type of service to rise from $4 billion in 2022 to $9 billion by 2026.

YouTube has discussed taking a cut of ad revenue from the new hub that would be similar to its traditional arrangement with content creators, under which it gets 45% and allows the programmers to keep 55%, some of the people familiar with the discussions said.

Becoming a destination for ad-supported channels makes sense for YouTube given how much success other companies have had in the space, said John Kosner, chief executive of media consulting firm Kosner Media. “Why would YouTube cede ground to Pluto and Tubi and the rest of them?” Mr. Kosner said.

Late last year YouTube launched a new streaming service store called Primetime Channels that lets viewers sign up for subscription streaming services such as Paramount+ and Starz directly through YouTube.

YouTube also offers its own paid streaming service, YouTube TV, which lets users stream a package of major cable channels—from CNN to ESPN—for $65 a month. The NFL Sunday Ticket package will be offered as an add-on to YouTube TV as well as through Primetime Channels.

YouTube also has rolled out short-form videos, called Shorts, as it competes with social media giant TikTok for attention, particularly from younger audiences.

YouTube, which has more than two billion monthly users, accounts for the greatest share of U.S. TV viewing time of any streaming service, according to ratings firm Nielsen. It attracted 8.8% of Americans’ TV viewing time in November, beating Netflix Inc. for the third consecutive month. YouTube TV has at least five million subscribers and trial accounts.

YouTube has begun testing the new hub of free, ad-supported streaming channels with content suppliers, including Lions Gate Entertainment Corp., A+E Networks, Cinedigm Corp and FilmRise, according to people familiar with the tests.

Some streaming executives say the format offers a more relaxed or “lean back” viewing experience than other forms of content in which people actively select the program or film they want to watch. The content available is often comforting fare, “the macaroni and cheese of television and movies,” said Chris Buchanan, president of streaming consulting firm South Medio Partners.

Such services appeal to cost-conscious consumers. “Free is free and in times of economic hardship, free is even more important,” said Danny Fisher, chief executive of FilmRise.

Hollywood studios, smart-TV makers and streaming platforms alike are rushing to create such channels because they offer a way to broaden the reach of their content and make money from shows that might otherwise not be featured in major subscription streaming services.