Sony (NYSE:SONY) has not had the best few years in the streaming space. The company's live TV streaming service, PlayStation Vue, has been struggling relative to its peers. And life has not been too much better for Sony Crackle, the company's ad-supported streaming video on demand (AVOD) service.

Sony purchased its streaming service -- then called "Grouper" -- for $65 million in 2006 . The next year, it rebranded the service as Crackle (in 2018, Crackle became Sony Crackle). By 2010, the service was expanding overseas.

AVOD is a healthy space, but Sony Crackle is not dominating it

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But in 2014, Crackle shut down its operations in the UK and Australia. That same year, it gained a new competitor in the form of Tubi TV.

The rise of Tubi TV

Tubi TV, a private company, entered the AVOD fray in 2014. At the time, Crackle was the biggest service in the space (other AVOD services include smaller operations like Popcornflix, another private company).

From the start, Tubi TV had an edge on Crackle. Tubi TV's library had more than 20,000 videos at the time of its 2014 launch, which instantly made it the largest library in the AVOD space.

And Tubi TV has kept growing. Tubi TV now has more titles than Netflix. It may have the largest library of any streaming service (Tubi TV hasn't released exact figures about its library for months now -- as a private company, it has no obligation to be particularly transparent).

Meanwhile, Sony Crackle kept suffering. Its excessive ad load and poor promotion led to further problems, and it shut down operations in Canada in 2018.

The good and the bad of Sony Crackle's AVOD market share

It's self-evident that Tubi TV's rise is not good for Sony Crackle. Despite its head start, Sony Crackle has ceded the inside track to its rival.

Still, there are at least some important reasons not to give up on Sony Crackle.

Perhaps the most important of these is that the nature of AVOD services makes Crackle a much safer investment than Sony's other streaming service, PlayStation Vue. The details of streaming content deals can be complex and are often private, but AVOD services have an advantage in that their source of income -- advertisements -- scales up with streaming volume. With a well-structured content deal that pegs fees to streams, an AVOD service can be reasonably sure that it will at least not lose money. That's not true of live TV "skinny bundle" services like PlayStation Vue, which rely on subscriber fees and often pay more for content per subscriber than they earn in fees.

Another reason to hold out hope for Sony Crackle is the nature of AVOD services themselves. By any estimation, a significant chunk of AVOD streamers are using their AVOD service to supplement -- not replace -- their paid streaming subscriptions. Sony Crackle does not need to be anyone's first choice of streaming service in order to survive and profit. If AVOD services in general can survive on what trickles down from SVOD, perhaps Sony Crackle can survive on streamers supplementing both SVOD and another AVOD service, like Tubi TV.

The good and the bad of overlapping catalogs

On the other hand, there is one factor that suggests Sony Crackle will not have much luck living on Tubi TV's leftovers. That factor is the nature of Sony Crackle's streaming library, and that of AVOD streaming libraries in general.

Generally speaking, AVOD services have been less focused on original series than SVOD services have been. Sony Crackle's one significant original series success, Jerry Seinfeld's Comedians in Cars Getting Coffee, now belongs to Netflix. Tubi TV hasn't touched original series at all.

That makes sense: AVOD services are less incentivized to lower content costs. Netflix has to cover its content acquisitions with subscriber fees, while AVOD services can be sure that each additional stream of an extra-popular movie will also generate additional advertising revenue. And AVOD services are less likely to get in bidding wars because they are far less focused on exclusive rights deals that companies like Netflix may be.

This is a decidedly mixed bag for the future of Sony Crackle.

The same movies are often available on Tubi TV, Crackle, and other platforms

Image source: Getty Images

On the one hand, Sony Crackle has a fairly impressive -- if somewhat small -- library. The same titles regularly come to Sony Crackle, Amazon, and Hulu. Sony Crackle offers those titles for free. So far, so good.

But those same titles also come to Tubi TV, and that raises a significant issue for Sony Crackle.

AVOD services offer value because they offer large libraries of content that may not be available on Netflix. If you can't find your favorite movie on the world's most dominant streaming service, AVOD services hope you'll turn to them and watch it for free, rather than choosing to buy or rent that movie through a paid service. And as Netflix and other companies focus on original series to differentiate themselves and lower content costs, AVOD services hope to see more and more of this sort of trickle-down traffic.

But since AVOD rights deals are rarely exclusive, there is reason to fear that much of this trickle-down traffic will be sopped up by the largest AVOD service -- which, right now, is Tubi TV. Sony Crackle may have a lot that Netflix doesn't, but it is not nearly so well-positioned against its AVOD rival. That's a serious problem.

It's not looking good for Sony Crackle

All of this spells trouble for Sony's AVOD service. Without exclusive content, Sony Crackle needs a huge library to be a viable alternative to Tubi TV. It doesn't have a comparable library right now, and it's allowing Tubi TV to dominate the space. AVOD is a viable business model, but without exclusives, it's hard to see more than one AVOD service enjoying real success. Sony Crackle may not be shut down anytime soon, but it doesn't seem poised to make much of a profit, either.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.