Why Netflix Needs to Embrace FAST

Netflix AVOD
Yinchen Niu, Cheyne Gateley / VIP+

Perhaps the biggest news to come from Netflix’s disastrous Q1 2022 earnings call last month was the admission that the world’s biggest SVOD was finally considering having an ad-supported subscription tier.

This was an admission that the once master disruptor had failed to read market signs and was now being disrupted by old media companies including Disney, Paramount and Comcast now playing in Netflix’s space, all of whom have either introduced or announced ad-supported SVOD tiers.

Netflix does have one card up its sleeve, but the jury is out on how effective this will be at drawing new subscribers in or reducing churn. The streaming giant began testing a linear channel within the service — what I would refer to as an ad-free Premium Streaming Channel (PSC), similar to those found on Paramount+, Discovery+ and AMC+ — in France from November 2020.

This PSC aired a blend of TV shows and movies, with content made in France and abroad available. While PSCs represent a way to both combat viewers’ indecision in finding something to watch with too many choices, and keep subscribers engaged while using the app, it’s highly unlikely they would be a key driver in subscriber retention or sign-ups.

Lacking ads, PSCs do not offer additional revenue streams. It is highly probable that, in an ad-supported Netflix tier, these channels would become PAST (premium ad-supported streaming channels) and feature prominent, recent Netflix originals. This, sitting alongside ad-supported on-demand content, would yield a big revenue boost as viewers would be able to choose whether to sit back and watch what’s programmed, or choose a specific title.

PSCs and PASTs represent a great way to utilize and monetize newer hits within the Netflix library. The way to monetize these is by making them available, licensed out as FAST channels to the many FAST platforms in operation.

At first, this may seem a head-scratcher — Netflix making content available for free — but it would be no different from the successful strategies employed by A+E Networks, AMC Networks and Paramount in taking paid content and making it available for free.

With Netflix producing original content for close to a decade, it finds itself in a similar position to traditional content companies sitting on a large number of originals with little interest among current subscribers.

To test this notion, VIP+ partnered with TV and streaming measurement experts Samba TV to assess whether Netflix tentpole hits have a long audience engagement period or not. For the most recent seasons of tentpole series “Ozark,” “The Witcher” and “Tiger King,” over 95% of lifetime viewership occurred by day 58 after premiere, with the vast majority of this — 85%, 83% and 92%, respectively — taking place within 25 days.

This suggests that while big hits are a crucial part of Netflix’s consumer value proposition, their subscriber shelf life is brief. In other words, if there is barely any subscriber viewing of previous seasons of a show, there’s no real subscriber value in these shows being exclusive to subscribers.

This is where the proven example of FAST kicks in. When Pluto was bought by Viacom in early 2019 — for a shrewd $340M given it now generates over $250M a quarter in revenue — the FAST service has 12.8 million domestic monthly average users (MAU) for Q4 2018. Once Viacom’s known cable and TV show brands were infused into the service, viewership took off, with the final reported domestic MAU in Q4 2020 30.1 million, an increase of 135% in two years.

Audiences will watch older content with brand parity that’s free. This is what underpins the successful FAST businesses from TV companies. Netflix is full of award-winning shows like “Ozark,” “Bridgerton,” “Stranger Things” and “The Crown,” which most audiences aren’t paying to watch prior seasons of but would stand out like an audience lightning rod if part of a Netflix suite of FAST channels.

Pop-up channels, which are temporary FAST channels, could be utilized with marathons of old series when a new series is premiering to help drive subscriptions. Should this occur, it would show how Netflix is no longer the disruptive new kid on the block, given it was this strategy with prior seasons of AMC’s “Breaking Bad” available to marathon-watch on Netflix that led to the final season doubling its prior season audience.

Key to this plan would be if Netflix top brass considers “free” to be beneath them, much as they once considered advertising. That would be foolish. Content that isn’t being watched by subscribers is monetizable by FAST, and the revenues from the medium are set to grow. VIP+ estimates that the U.S. ad revenue from FAST will grow from $3.9B in 2022 to $6.1B in 2025, with this estimate made without the potential for Netflix channels growing it further.

Embracing FAST won’t turn Netflix’s fortunes around. Alongside ad-supported SVOD tiers, it will mean that Netflix is fully embracing all of what streaming offers and is dedicated to maximizing value from older content. With the focus that Wall Street has on Netflix currently, any and all ways to boost revenue should be considered.