Why Peacock’s Bet on Ad-Supported Streaming Could Be Genius Move

NBCUniversal’s new Peacock streaming service is still months away from its attempt to win over viewers in an increasingly saturated streaming market, but it’s already made a strong first impression with Wall Street analysts. Peacock, which NBCU execs like chairman Steve Burke unveiled Thursday at its 30 Rockefeller Plaza headquarters in New York, will launch on April 15 for Comcast Xfinity X1 and Flex subscribers, before rolling out nationwide on July 15 — about a week before the 2020 Tokyo Olympics kick off. NBCUniversal unveiled a deluge of shows and films — both original and classic — that will be available on the platform at launch, and in the year to come. Old titles such as “The Office,” “Parks and Recreation” and “Battlestar Galactica,” as well as new revivals like the “Saved by the Bell” and “Punky Brewster” were already known. What has analysts especially intrigued, though, is Peacock’s multi-pronged pricing structure. A free option, aptly dubbed Peacock Free, will include access to select Peacock original shows, NBC library content, and next-day access to current shows on NBC. (It’s unclear if shows from NBCU’s cable networks like Bravo, USA and Syfy will also be included in the free tier.) Peacock Premium, on the other hand, will cost either $4.99 per month for ad-supported streaming or $9.99 for ad-free viewing of all Peacock original content; it’ll also include early access to shows like the “Tonight Show” and more sports. Wedbush Analyst Dan Ives called NBCU parent company Comcast’s decision to set itself apart and lean into ad-supported streaming a “smart” move. “A key differentiator in our opinion for Peacock is its monetization approach,” Ives said in a note to clients. “Comcast plans to make its money from revenue earned from the commercials streaming with its programs unlike the traditional subscription fee approach. To this point, Peacock will limit the amount (and) time of ads to 5 minutes per viewing hour with the hopes of this feature helping to lure consumers away from competitors and on to its platform.” Ad-supported streaming, to this point, hasn’t been a sexy choice. Netflix, which now has more than 158 million subscribers, ran to the front of the streaming pack as an ad-free service; it’s also adamantly pushed back against suggestions it might explore advertising on its home screen or introduce an ad-supported subscriber tier. Amazon Prime Video and HBO Now have skirted ads, too, while Hulu has offered both an ad-supported and ad-free options. (Hulu earns more from its ad-supported subscribers than its ad-free subscribers, a person with knowledge of the company’s business model told TheWrap.) When it comes to premium streaming services, the tacit agreement between companies and their subscribers has typically been you give us quality shows, and we’ll pay to skip any ads. But that agreement may be harder to keep as more streaming services hit the market and consumers balk at paying for yet another service. Disney+ and Apple TV+ recently launched as subscription video-on-demand (SVOD) services, and upcoming services from both WarnerMedia and Quibi will add two more formidable choices for viewers to pick from. How many streaming services can people realistically expect to pay for? There was already a slight dip last year in how many streaming services U.S. households paid for last year. By offering both a cheap and free ad-supported subscription, NBCU positions itself well to attract budget-minded viewers, IHS Markit analyst Sarah Henschel told TheWrap. “NBCUniversal is increasingly aware of the influx of new direct to consumer SVOD services entering the market. Their positioning of Peacock smartly looks to both stay competitive with quality content and to prevent breaching consumer price thresholds,” Henschel said. “By pursuing an AVOD business model, NBCU is able to differentiate their service by offering a free option to consumers, and buy themselves time to build up an originals slate,” Henschel continued. “The AVOD model business model puts less pressure on a service hitting subscriber numbers solely to measure if it is successful. NBCU’s past ownership experience with Hulu also gives them advantages in understanding the ins and outs of operating an ad-supported online video business.” To this point, AVOD services have largely been complimentary to subscription services because of their underwhelming content. By offering some of its top shows to free customers, though, Peacock could break the mold, according to Parks Associates analyst Brandon Riney. “Peacock may disrupt this standard with its free tier that could include content that is more current and more premium, although it has roughly half the amount of content that its premium, paid tiers offer,” Riney said, noting that no free, ad-based streaming service has a market share greater than 7% of U.S. broadband households. “So there is an opportunity for Peacock to quickly become a leader in this space,” he added. Comcast and NBCU are betting Peacock will attract up to 35 million subscribers by the end of 2025. That projection, according to several analysts, appears light, when looking at the built-in advantages Peacock will enjoy. “The overall outlook and estimate, I would say, was overly conservative when you consider it will be available to Comcast and Cox customers right off the bat, with the ability to upgrade,” CFRA analyst Tuna Amobi told TheWrap. “Peacock has much better than a long shot at being one of the premiere, commercially viable streaming services out there… The main question is how are they going to continue to build and refresh the content.”