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See the full story · 1 sourcesDisney and Paramount Skydance have brainstormed introducing free tiers for their paid streaming services. Netflix co-CEO Greg Peters has said his company will "continue to consider" a free tier. Anadolu Agency/Getty Images; Bloomberg/Getty Images; Michael Yanow/NurPhoto via Getty Images
Free tiers could help paid streamers fight the rise of services like YouTube and Tubi.
Disney and Paramount are exploring free tiers, Business Insider has reported.
However, Netflix's co-CEO suggested that making some content free can be risky.
To free, or not to free?
That is the question for paid streamers like Netflix, as free services, and YouTube in particular, attract TV viewers.
Hollywood giants Disney and Paramount Skydance are exploring adding free tiers to their subscription services to build audiences, grow advertising revenue, and turn curious newcomers into customers, Business Insider previously reported. And Netflix co-CEO Greg Peters said in mid-July that "a free offering could make sense in some markets."
Free tiers could define the next stage of the streaming wars as services look to win over consumers sick of stream-flation . YouTube has enjoyed significant growth , as have free, ad-supported TV apps like Tubi and The Roku Channel, which are known as FAST services. Those three free streamers had a 19.1% viewership share on US TVs in May, according to Nielsen, up from 17.2% a year earlier.
While Apple TV and Paramount+ let users sample some full episodes, most paid streamers don't have substantial free offerings.
"A genuinely free, advertising-funded tier is entirely feasible and could serve as a meaningful differentiator, particularly as consumers become more selective about the growing number of subscriptions they maintain," said media industry analyst Paolo Pescatore of PP Foresight.
Free streaming tiers also carry risk, since they could cannibalize a platform's subscription revenue if paid users trade down, said Greenlight Analytics analyst Brandon Katz. Streamers would have to thread the needle in deciding what content to give away for free.
"Give away too little, and consumers will not engage," Pescatore said. "Give away too much, and the company risks undermining the very subscription model it is trying to support."
The best things in life are free
Disney has discussed allowing free access to select Disney+ content , Business Insider reported in July. A source familiar with the company's strategy said streaming leaders often brainstorm ways to better serve audiences.
Katz said that making some shows and movies free could help a company like Disney "extract more value from its content investments" by driving viewership years after their releases.
Paramount+ is exploring free content as well, through a planned feature known internally as the "free front porch," Business Insider reported last month. This free tier was listed as a "Q3 product priority" during a recent streaming town hall, alongside micro dramas and podcast clips .
Paramount+ is planning a free tier to bring in new customers. Business Insider
Paramount's presentation said that allowing free access could "drive acquisition and winbacks" of previous customers by getting viewers used to its app and hooked on its content.
"I'm surprised that it hasn't happened already," Alan Wolk, a media analyst at TVREV, said of the Paramount+ free tier concept. "I think they should all do it. Otherwise, they're just ceding ground to the FAST services that could be theirs." (Paramount does have its own separate FAST service, Pluto TV.)
In a crowded TV landscape, offering free episodes of older shows or samples of new seasons is "a way to keep awareness going," Wolk said. Streamers can get viewers in the habit of watching their libraries, tell them about new originals, and then upsell them on access to the full catalog.
"There's not an ambient awareness of what's on TV like there used to be," Wolk said.
Being 'thoughtful about cannibalization'
While free tiers may seem promising, the risk could outweigh the potential reward for some streamers — especially in certain markets.
Netflix has built such a large US subscriber base that it must be "thoughtful about cannibalization of paid tiers," said Peters, its co-CEO, on the company's second-quarter earnings call. If the streaming giant made any of its content available for free, it could give some customers a reason to cancel.
"For Netflix, any potential loss of subscription revenue would need to be outweighed by advertising income and incremental reach," Pescatore said. He added that a free tier could be "more compelling in markets where paid penetration is lower or where pricing remains a significant barrier."
Peters said Netflix would need "an effective scaled ads business" before launching a free tier in a market. He said Netflix would "continue to consider" a free tier but has "no near-term plans" of launching one.
While free tiers could help Disney and Paramount, there could be a "glut" of new supply in the streaming ad market if their rivals followed suit, said John Conca, a media analyst at research firm Third Bridge.
"If everyone is offering something free, what happens to the ad economy? I could see a world where that becomes really challenging," Conca said.
Streamers would also have to consider whether going the free route would dilute their brand.
Pescatore said a free tier could "alter perceptions of a premium service, especially if consumers begin to see its content as something that should be available without payment."
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