Why Comcast purchased Irvine ad-supported streaming service Xumo

In a sea of streaming giants, they are minnows.

So why are small streaming platforms such as Xumo,Vudu and Tubi attracting so much interest from big media companies?

On Tuesday, Comcast Corp., the Philadelphia-based cable company that owns NBCUniversal, said it acquired Xumo, the Irvine-based streaming service.

For Comcast and others, services like Xumo provide an opportunity to reach consumers who want to watch shows for free and are willing to sit through the ads that go with them.

Comcast did not disclose the financial terms of the deal, but people familiar with the situation said Xumo was acquired for more than $100 million.

The move indicates a growing interest by legacy media companies in buying ad-supported streaming services, as customers look for free alternatives to watch TV shows and movies on demand in a market crowded with paid subscription platforms.

“Free is a very compelling offer,” said Eunice Shin, a partner at the consulting firm Prophet. “For these larger companies looking to acquire, it’s a game of numbers. How can you reach a certain amount of scale and eyeballs.”

In the U.S., the video ad market is expected to grow from $41.76 billion in 2020 to $59.45 billion in 2023, according to research firm eMarketer. By comparison, TV advertising is projected to drop 3% from $71 billion in 2020 to $68.89 billion 2023, eMarketer said.

The migration in advertising reflects changing consumer habits. More consumers are choosing to cut their ties with traditional cable networks and pay for streaming services, making it difficult for business such as Comcast to retain them.

Analysts say Xumo will help support Comcast-owned NBCUniversal’s streaming service Peacock when it launches in April by giving it a wider audience, more channels and technology. In addition to subscription tiers, Peacock will also offer a free, ad-supported service for customers.

Xumo will also give Comcast a bigger foothold in reaching customers through smart TVs. Xumo has partnerships with smart TV manufacturers like Samsung and is available in 45 million U.S. households.

Founded in 2011 as a joint venture between Viant Technology (then known as Interactive Media Holdings) and Panasonic, Xumo provides live and on-demand access to more than 190 different channels. The company has roughly 10 million monthly active viewers and employs 55 full-time employees in Irvine, Los Angeles and New York. Xumo’s owners include media company Meredith Corp.

“Comcast approached us and we felt it was a positively beneficial and strategic move for Xumo to partner and work towards building and developing even more innovative products,” said Fern Feistel, executive director of marketing and content operations.

Comcast said in a statement that Xumo will continue to operate as an independent business inside Comcast Cable. “The talented team at Xumo has created a successful, growing, and best-in-class set of streaming capabilities,” Comcast said.

Xumo is the latest ad-supported network to be acquired. Last year, Viacom purchased Pluto TV, which offers live and on-demand channels to be streamed, for $340 million.

Other potential acquisition targets include San Francisco-based Tubi, which offers licensed movies and TV shows on demand, and Walmart’s Vudu.

Comcast is in discussions to buy Vudu, while Fox Corp. is looking at Tubi. The potential acquisitions were first reported by the Wall Street Journal.

Tubi and Fox declined to comment. Walmart did not return a request for comment.

For late entrants into the streaming market, ad-supported video is a less expensive option. To compete with Netflix and Disney+, rivals would need to invest heavily to build a subscription platform that attracts viewers by creating their own original, exclusive content.

Tubi, for example, does not fund original productions or serve up the top 1% of licensed shows such as “Friends” or “The Office,” which helps it avoid bidding wars with Netflix. Instead, Tubi viewers can see the first season of “The Bachelor” and older movies like “The Last Samurai.”

In a market crowded with paid streaming services, consumers are hungry for free options, says CEO Farhad Massoudi. Tubi said that it had 25 million monthly active users in December.

“Subscription fatigue is a real problem,” Massoudi told the L.A. Times last year.