Tubi TV Is Bringing Traditional Television Economics to Streaming

Ad-supported streaming service recently raised $20 million and grew subscribers nine times last year

Commercial-free Netflix, which recently reached 100 million subscribers around the world, can legitimately claim to be the future of TV. Or maybe it’s ad-free Amazon Prime. Or Hulu’s new live TV service, which comes with access to its ad-lite on-demand product. But does the future of TV include old-fashioned commercial breaks, after all?

Tubi TV CEO Farhad Massoudi thinks so. His streaming service, Tubi TV, raised $20 million in new funding last month as it looks to expand its ad-supported, on-demand business. And while companies like Hulu, Google’s YouTube and AT&T’s DirecTV have recently launched streamlined (and relatively affordable) live internet TV services, Massoudi thinks live is overrated for almost everything that’s not sports and news — and subscriptions are overpriced.

“The average customer — especially the millennials — they don’t want live TV except for a few categories,” he told TheWrap. “Live sports makes a lot of sense. I question frankly some of these live-TV [streaming] packages that aren’t sports-centric.”

And by eschewing the subscription model, Massoudi said Tubi TV is able to cater to budget-conscious consumers who he says aren’t inclined to sign up for the incremental, a la carte subscriptions required to build out a robust streaming experience. Instead, Tubi TV is essentially bringing the traditional, terrestrial free-to-air model to internet TV.

“Where we’re different from the video on demand sites is we’re focused on average America that doesn’t want to pay more for TV,” Massoudi told TheWrap. “They’re heavy TV viewers and they are very cost-conscious. They may have one — or none — subscription service.”

Part of Massoudi’s theory is that younger viewers, who are used to YouTube’s pre-roll ads, may not be as averse to commercials they can’t fast-forward through as their DVR-loving parents. Also, they may not have the type of disposable income to where dropping another few dollars a month on an additional subscription service is a real issue.

Where Netflix charges $10 a month for access to its suite of content, which includes popular cable series from around the world, films from major studios like Disney and original series like “House of Cards,” Tubi TV is completely ad-supported. Its content partners, who include MGM, Paramount, Lionsgate and others, give the service a library of 50,000 TV and film titles, available to watch on a rotating basis. Tubi TV also includes offerings from some increasingly popular niche areas, such as Korean drama.

And those titles, many of which are somewhat older movies and shows but remain eminently watchable, like “Gladiator,” come significantly cheaper than producing original content. Netflix is shelling out an estimated $6 billion on programming in 2017.

“Unlike the subscription services who focus most of their budget on a few shiny TV shows that they can dangle in front of customer and get them to submit to a monthly subscription, we have instead focused on building a vast library that’s second only to Netflix in size,” Massoudi said.

Massoudi said it hasn’t been hard to find companies to fill Tubi TV’s commercial slots, as many of them are looking to reach a younger generation of viewers who simply aren’t tuning into linear TV anymore.

“What we have done is we essentially offer advertisers a TV commercial-like experience, but we reach an audience that’s no longer watching TV commercials.”

Massoudi said advertising on Tubi TV also comes without some of the risk of other places to reach cord-cutters like YouTube, where popular creators can become brand liabilities with one stupid tweet or video. And so as not to alienate viewers who might be getting used to a video experience with fewer interruptions, Tubi TV has about four to five minutes of commercials per 30 minutes of content, which is less than traditional TV.

“We’re very much brand-safe, unlike some of the other players out there that have dealt lately with quality of content,” he said. “We only deal with TV shows and movies.”

Massoudi said that library helped Tubi TV grow its monthly active users nine-fold over the course of last year, with virtually no marketing — although the company is not yet profitable. He said some of Tubi TV’s new funding will go toward establishing a marketing budget to further get the word out about the service. But will Tubi TV follow suit with its streaming brethren like Netflix, Amazon and Hulu and start developing originals? Don’t count on it.

“We have a very contrarian view of focusing on a library of content and building an audience around it,” Massoudi said.