As streaming services get more expensive, consumers are increasingly turning to free content to fill out their entertainment diets.

Free ad-supported streaming platforms like the Roku Channel (ROKU), Fox affiliate Tubi (FOX), and Paramount's (PARA) Pluto TV, among others, have seen viewership steadily rise over the past few years, a surprising development given the lack of original content and heavy ad load on these channels, known as FAST channels.

FAST — which stands for free ad-supported streaming television — provides both linear and on-demand content in a single viewing experience that relies on advertising for monetization.

The rise of FAST comes as nearly every major streaming service has raised prices in recent months, including Paramount, Netflix (NFLX), Max (WBD), and Amazon (AMZN).

"It is different to be 100% free," Tubi CEO Anjali Sud said on the Ringer podcast "The Town With Matthew Belloni" in April.

"We're not asking you to subscribe to an ad tier or a subscription tier. We're not trying to upsell you. The fragmentation and friction is reduced."

In other words, what appeals to users is the accessibility. Julie Clark, executive at marketing insights company TransUnion, described the model as a "sleeping giant" in the ever-evolving media landscape.

"FAST is easy, it's accessible," she told Yahoo Finance. "You can get the basics that you need, like the news and the weather, but there's also older programming available and they're starting to have better distribution agreements there as well."

To put it simply, FAST is the closest thing you can get to cable without actually paying for it. Not to mention that certain FAST providers, like the Roku Channel and Samsung's TV Plus, are also distributed across their respective smart TV devices, further broadening their presence for users.

"There's this catalog of content that is available within the FAST environment that you can binge all day," Clark said. "And with recent price sensitivities, I think we're going to continue to see this grow."

Content on FAST channels can encompass everything from made-for-TV movies and old shows from traditional studios to low-budget unscripted series, short-form videos, documentaries, and sports.

You still won't catch the new season of "Bridgerton" or the latest episode of "The Bear." But for cost-conscious consumers, that might not matter.

Tubi, which Fox acquired for $440 million in 2020, led year-over-year growth for the network following a nearly 5% monthly viewing increase in May, according to Nielsen. It secured a platform-best 1.8% of total TV usage for the month as a record 1 million viewers tuned in.

Even more impressive? Its average audience for May came in ahead of traditional streamers Disney+, Peacock, Paramount+, and Max, Nielsen confirmed.

"A lot of people confuse Tubi as being sort of this passive FAST channel that is just on rotation in the background of a person's household. It's not," Fox CFO Steven Tomsic said at a MoffettNathanson conference last month. "90% of Tubi consumption is [video on-demand] where it's a real lean-forward experience. People have deliberately chosen the title and watch through it."

Tubi has experimented with original content, but its bread and butter revolves around its library. Tubi boasts more than 240,000 movies and TV series on its platform, the bulk of which is licensed. Its audience is 63% made up of "cord cutters" or "cord nevers," while 40% are not subscribed to other traditional streamers.

Meanwhile, the Roku Channel, which has also dabbled in some original programming, saw a 1.3% monthly bump in viewing. That led the FAST provider to a platform-best 1.5% share of TV — the only company to climb in the rankings for May, nabbing 10th overall.

Competitors have taken notice. Bloomberg recently reported that Netflix is weighing its own free ad-supported tier in certain markets like Europe and Asia. It won't roll out a free version in the US since its subscriber base in the country is already heavily penetrated, according to the report.

But the FAST business model remains unproven. Tubi, for example, has yet to turn a profit. The long-term outlook also remains murky against the expected reacceleration of M&A within the media industry at large.

"I'm probably a little bit more cautious than others," Tim Nollen, analyst at Macquarie, told Yahoo Finance. He noted FAST providers must utilize a different strategic approach than other streamers, given their lack of premium or exclusive content.

"A lack of premium content means they have to be effective at using ad technology to target the users that they do have," Nollen said. "It's a large audience, but it may not be a particularly engaged audience. I think they will be successful at using technology to target those users. But it might be in a somewhat different manner."

Companies like Paramount, Fox, and Roku do not break out the financials of their respective FAST channels, although they're consistently called out as growth drivers on earnings calls.

Paramount, for instance, credited Pluto TV for its double-digit advertising revenue growth in the first quarter. Roku and Fox did the same.

The rise of ads on streaming

Advertising on connected TV, which refers to devices and platforms connected to the internet, has exploded in recent years. And it's not just FAST channels benefiting from the transition.

Companies like Netflix, Disney, and, most recently, Amazon have entered the ad-supported streaming space in recent years. That means more inventory and also more opportunities to better target and monetize consumers through technology.

"There's a lot of ability for advertisers to test, learn, and use sophisticated targeting that was only available within traditional digital advertising before," Clark told Yahoo Finance. "That is absolutely leading to some of the growth in FAST and other ad-supported services."

MoffettNathanson predicted total advertising on over-the-top streaming services will grow 33% this year, compared with a 17% increase in 2023, fueled by more consumers choosing ad-based streaming tiers.

"There's a comfort level [in] that value exchange," Clark said. "Even younger consumers are getting used to ads on YouTube, so it's this natural progression."

Ads are also easier to stomach if you know you're paying less (or nothing at all) to watch them.

"People value choice at the end of the day. And we have always been used to watching ads, whether it be on a cable network or on YouTube," said Vikrant Mathur, co-founder of Future Today, a company that specializes in ad-supported connected TV solutions.

"But now we have a choice. And if I can save money, I may be more willing to make that compromise."

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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