Cord cutting isn’t just changing the way we watch TV; it’s also fundamentally transforming how television networks are operating. This transformation is being driven by a small set of streaming tech startups, which suddenly have become some of the hottest players in an ever-changing industry.
There’s Wurl, which got acquired for $430 million earlier this month. Amagi announced a new $95 million round of funding that pushed its valuation into unicorn territory Wednesday. And there’s Frequency, which quadrupled its revenue last year and is on pace to double its quarterly revenue again on a sequential basis in Q1, according to CEO Blair Harrison.
“Business has been booming,” Harrison told Protocol this week. “It’s bonkers.”
All three startups have been in business for over a decade, trying to convince a legacy industry to adopt new cloud-based tools. It’s been a slow-moving process — until around a year before the pandemic, that is. “We’ve been growing almost 100% a year for the last three years,” said Amagi co-founder and CEO Baskar Subramanian. The number of new customers added to Amagi’s roster grew by nearly 60% in 2021, and ad impressions facilitated by Amagi were up 112% last year, the company disclosed this week.
What changed the game for Amagi and its competitors was the introduction of free, ad-supported streaming channels, also known as FAST channels in industry parlance, which began to take off in earnest in 2020. Smart TV platform operators like LG, Samsung and Vizio all began to incorporate these channels into their device’s programming guides, where the streaming channels are presented to consumers right next to big broadcasters like ABC and CBS. Streaming platforms like Plex, Redbox and The Roku Channel have embraced these channels as a free alternative to basic cable and even paid services like Peacock have begun to channelize their catalog.
The success of these channels caught even insiders by surprise. “I don’t think any of us would have predicted that people would watch linear content of any fashion,” Subramanian said. But the free channels have proven to be immensely popular with consumers who embrace cable-like channel surfing as an easy-to-consume alternative to the effort it takes to find something to watch on video services with tens of thousands of on-demand titles.
It also doesn’t hurt that FAST is free. “People realized it was entirely watchable and cost exactly nothing, and the advertising experience was no worse, and often better, than watching the pay TV service they paid $84 a month for,” Harrison said.
The success of FAST channels has become a flywheel, with a growing number of traditional broadcasters and cable networks spinning up their own free streaming channels to monetize their catalog content. Now, news and sports are joining the fray.
All of this has led to some more substantial changes for the industry. Big media companies embraced FAST as a way to generate some additional ad dollars, but many of them also quickly realized that the cloud-based technology powering these channels was a lot cheaper than what they had been using internally for decades and wanted to replace for years.
“If you're a traditional broadcaster, you've probably got a three-year plan to migrate to the cloud, and I'm sure it keeps getting extended by a year every year,” Harrison said. With FAST, the solution was suddenly right there. “Companies in the business of making channels have realized that they can run all this stuff in the cloud with systems which are pretty much at parity now with traditional TV,” he said.
Plus, cloud-based infrastructure is a lot cheaper than running a bunch of media servers in-house, leading some companies to move more and more of their assets, including those to produce traditional TV channels, off premises. “While nobody was really paying attention, a massive amount of the traditional TV channel creation business has moved to the cloud,” Harrison said.
FAST is still evolving. Ads have started to become more personalized, but the programming remains the same for everyone. “Personalization is the next step that all the FAST platforms have to start looking at,” Subramanian said. Harrison agreed, adding that streaming platforms have to get better at integrating linear channels with their on-demand assets.
Once that happens, free streaming channels could turn from something that’s as good as basic cable to a service that’s even better, further accelerating consumer adoption. And when media companies see those eyeballs moving to streaming, they’ll be ready to meet them there, thanks to an internal transition to cloud-based infrastructure.
“It puts a nail in the coffin of traditional TV,” Harrison said.
Update: This story was updated March 16 to clarify the pace at which Frequency's revenue is growing.
