Any operator will tell you that having consumers pay for content is the ideal relationship, especially with subscriptions turned on and auto-renewing. And investors have tended to agree, valuing subscription businesses higher than advertising-first ones.

However, we are increasingly seeing that there are limits to what can be monetized via subscriptions. And, whether subscription-only proponents like it or not, businesses will need to evolve with the times to continue growing.

Consider what David Zaslav, Warner Bros. Discovery CEO said on its third-quarter earnings call:

The word fast is capitalized in that quote because it stands for Free, Ad-Supported Television. Many large content creators are reminiscing about a simpler time when free cable TV reigned supreme. In many respects, the idea of free content supported by advertising sounds like what we've spent the last ten years cutting from our lives. But I guess what's old is new again.

And the money could be very good. According to a report by S&P Global Market Intelligence back in September:

For context, Netflix generated $7.9 billion in Q3 2022 revenue, so while the growth of FAST is incredible, it's still early days. Nevertheless, if we look at Netflix's revenue, its year-over-year growth is only 5.9%, which explains why even Netflix is considering advertising.

But it's not just streaming where this is being considered. For example, Microsoft's Xbox team might consider an ad-supported option for its Game Pass subscription. According to Eurogamer:

Before you could play a game, you'd have to watch an ad. As someone who sucks at video games, I can imagine this becoming a slippery slope to more ads. Just as you're about to do the final boss fight, an ad pops up, and you have to sit there for 30 seconds waiting. I digress...

YouTube is entering the FAST game, as well. According to WSJ:

We begin to see two strategies playing out with FAST platforms. First, there's the aggregator, like what YouTube proposes, taking content from other content creators. Then there is a platform like what Warner Bros. Discovery is proposing: a free offering of its own content. I suspect whoever can provide the most content will win, but it's still early days.

Why is everyone doing this?

People are becoming price-conscious. As I said above, Netflix's Q3 revenue only grew 5.9% year-over-year. And it's not only a streaming problem. According to The Wall Street Journal:

It lost 500,000 subscribers in two years. There are many reasons for that, but people are looking at their credit card statements and deciding whether certain subscriptions make sense. And they're making cuts.

So, what should publishers do?

To some extent, the answer is a return to a primary media tenet: diversification. It's true; having a user pay for something is incredible. But having a robust advertising business complements the subscription revenue. And while consumers might cut their paid spend, they're unlikely to cut their time spent with content; therefore, giving an ad-supported option makes sense. And so, even if subscription revenue drops, advertising shouldn't drop as hard.

But how do you tactically execute? It's highly dependent on the type of content you're working with.

In the case of news, the shelf-life of the content is short. People want to know what happened today, not six months ago. So, it's not as if the library has much value. And so it might simply be a tiering of content where the highest quality reporting is behind a paywall, and the rest is free.

For less time-sensitive content, the model might work for new-vs-old content. If you re-read Zaslav's statement, he's looking at his older content as the backbone for the FAST platform. If people want content immediately, they pay; if they want the re-runs, they'll be able to get it by watching ads.

Ironically, this is how the movie business has always worked. If you want it at launch, buy movie tickets and go to the theater. Then, if you were willing to wait longer, you might buy it on DVD or rent it on Amazon Prime. And then, if you were willing to wait even longer, a cable channel would license it, and you'd watch with ads.

Monetizing content requires diversification. It's not that advertising is better than subscriptions. On the contrary, getting users to pull out their credit cards is truly the peak of monetization. However, monetizing their attention is also lucrative. The best media companies do both. FAST is showing that what's old is new again. We should lean into this as operators and maximize our revenue without getting trapped in business model dogma.

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