Peacock is free. It may be the streaming service's not-so-secret weapon

If you're tired of the parade of new streaming services launching every couple months, you're not alone. But the last one rolling in -- Peacock, from Comcast-owned NBCUniversal -- wants to snap you out of your stupor with something the others won't match: a free option. 

Peacock launched Wednesday, and yet again, it's another splashy new service from a media or technology giant. Just like Disney Plus, HBO Max and Apple TV Plus that came before it, Peacock hopes its particular recipe of TV shows, movies and originals will hook you on its vision for TV's future. For you, these so-called streaming wars affect how many services you must use -- and pay for -- to watch your favorite shows and movies online. 

But unlike the rest, Peacock has a free tier. Peacock offers about two-thirds of its 20,000-hour catalog free for anyone to stream in the US, as long as they're willing to watch advertising. 

"The 'freemium' model will be the secret weapon for Peacock to win against the other big streaming services," said Michael J. Wolf, chief executive of consulting firm Activate. The free tier "will ensure that Peacock comes out of the gate with a large base of users and will be the service's surest path to scale."

This kind of free, ad-based video on demand isn't groundbreaking. It even has a jargony acronym, AVOD. But popular AVOD services like Pluto TV, Tubi and the Roku Channel don't mess around making originals. (Editors' note: Pluto TV is owned by ViacomCBS, the parent company of CNET.) And the AVOD services certainly don't reel in high-profile exclusives at eye-popping price tags, like Peacock's $500 million deal to take The Office away from Netflix starting in January. 

Peacock's proposition has the bait of exclusive content just as Netflix, Disney Plus and HBO Max do, but with a free, ad-supported option. It's the first service in years to blend both worlds into one package. And together, those factors may land Peacock right in a sweet spot, just as the coronavirus pandemic has made the combination more significant than ever. 

"Even before the crisis started, we were predicting that 2020 would be the year of AVOD making a big splash in the US," said Kevin Westcott, a top media researcher at Deloitte. The winning model, he said, has consistently been exclusive content that brings people in and a broad, diverse library that keeps them around. 

People are watching more streaming services than ever in the pandemic, and price has become less of a hurdle for people who signed up for new video subscriptions during the crisis compared with before, according to Wolf's study.  

But the top reason people cancel a video subscription now? Since the pandemic began, it's become cost, according to Westcott. 

"During this crisis, [cost] became more of a consideration than it was in the past," he said. That means for Peacock, "the timing is good, even if launching a service during the middle of a pandemic is challenging." 

Free trial vs. free tier

None of Peacock's direct competitors offers a free tier, but many are leaning into free trials to let you check out their services before paying up. Apple TV Plus and HBO Max both offer seven-day free trials standard and have deals giving certain people extended trial periods beyond a week. Even industry leader Netflix offers a month free to new members. 

Peacock is on the free trial bandwagon, too. 

In addition to its limited free tier, Peacock unlocks an all-access pass to its full library if you pay. These premium levels cost $5 a month with advertising, or you can upgrade to an ad-free version for $10 a month. To encourage people to try these paid levels, Peacock is offering a seven-day free trial standard, just like HBO Max and Apple TV Plus do. And like them, Peacock also has an extended free trial deal -- anyone who signs up through Peacock's Android app, or any other Google-run platform, gets the full Peacock library with ads through Oct. 15.  

These free trials are an important on-ramp for new paid subscribers. But with no free option after a trial, Peacock's competitors are missing a gentle off-ramp for people who no longer want to pay. Instead, you enter a world of all or nothing: Either you pay and get everything, or you quit cold turkey. (Or you find a friend or loved one to share a password -- not that anyone does that.)

Peacock's free tier could prove to be that gentle off-ramp from a free trial, and it may end up being crucial. Even though people are signing up for more services during the pandemic, they're canceling more streaming services too, according to Deloitte. That means it's never been easier to get people to try a new service, but it's become even harder to keep them. 

And after cost, the No. 2 reason people cancel a streaming subscription is that a free trial or discount just ran out, Westcott said. 

Ads, ads, ads

Those trends have played out more dramatically for AVOD services, the ones that are always free with advertising like Pluto TV, Tubi and the Roku Channel. The average number of AVOD services people use now has doubled since shelter-in-place practices began, according to Activate, from 1.5 services per household to 3.1.

The reason is that people actually don't hate ads with their streaming shows and movies, as long as there aren't too many. Consumers say they're willing to accept up to seven minutes of advertising per hour on a streaming service if it's free or cheaper than it would be otherwise, Westcott said. 

That's way less advertising than people deal with on regular TV. Broadcast TV averages more than 14 minutes of advertising an hour, and cable averages more than 16 minutes, according to Nielsen data for January through May. 

Peacock plans to keep its load of advertising below the seven-minute breaking point, at about five minutes per hour. And it's generally at the lower end of current AVOD services. Tubi, for example, has about four to six minutes of ads per hour. The Roku Channel has about eight minutes, the company said in August. And CBS All Access said back in 2016 that its $6-a-month tier has about 12 minutes of commercials. (Editors' note: CBS All Access is owned by ViacomCBS, the parent company of CNET.)

But while Peacock is the first in the most recent wave of new services to have an ad-supported tier, it won't be the last. HBO Max, which at $15 a month is generally the most expensive streaming service of its kind, will launch a cheaper, ad-supported tier early next year, AT&T's newly minted CEO John Stankey said in May. While HBO Max's advertising will lower the cost of service, you'll still need to pay. 

In fact, the last time a streaming service had three tiers like Peacock's was way back in late 2015. Hulu, at the time, tried three tiers -- a limited free level with ads, a paid tier with fewer ads and more content, and the priciest subscription with no ads at all. Hulu's free tier lasted about eight months before it disappeared. 

That doesn't mean Peacock's attempt at the same concept is doomed. And Peacock's leadership is banking on its free tier to become the service's hero. 

"It's free: That's the big differentiator, and I don't know if everyone's connected all of those dots," Matt Strauss, chairman of Peacock, said in an interview last month. "Nobody has really done that."

Watch this: Watch every Peacock originals trailer coming to streaming

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