Netflix Confirms a Cheaper Ad-Supported Plan is Coming

Posted on June 24, 2022 by Laurent Giret in Music + Videos, Netflix with 8 Comments

Netflix Co-CEO Ted Sarandos has confirmed that the company is working on a cheaper ad-supported tier. The announcement was made yesterday at the Cannes Lions advertising festival (via the Hollywood Reporter), and it follows the loss of 200,000 subscribers for Netflix in the last quarter.

“We’ve left a big customer segment off the table, which is people who say: ‘Hey, Netflix is too expensive for me and I don’t mind advertising,’” Sarandos said yesterday. It also doesn’t help that Netflix regularly increases its prices, with the latest price hike in March 2022 raising the price of the basic (no HD) plan to $9.99/month. The Standard (HD) and Premium (4K) plans were also bumped to $15.49 and $19.99, respectively.

Sarandos made it clear that this new-ad-supported tier won’t impact the existing Netflix plans. “We adding an ad tier; we’re not adding ads to Netflix as you know it today. We’re adding an ad tier for folks who say, ‘Hey, I want a lower price and I’ll watch ads,’” the exec explained.

During the company’s latest earning calls in April 2022, Netflix CEO Reed Hastings emphasized that competing services have successfully experimented with ad-supported plans. “It’s pretty clear that it’s working for Hulu. Disney is doing it. HBO did it. I don’t think we have a lot of doubt that it works,” Hastings said.

According to a previous report from The New York Times, Netflix executives recently told employees that this new ad-supported plan could launch in Q4 2022. The report also mentioned that Netflix plans to implement new measures before the end of the year to prevent subscribers to share their passwords outside of their households.

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Comments (8)

8 responses to “Netflix Confirms a Cheaper Ad-Supported Plan is Coming”

  1. dftf

    Not everyone can afford to pay for various streaming-services, especially when there are now so-many of them, and especially right-now, during the current Western-world inflation crisis, too.

    So while I'm glad to see a "paid-for-by-adverts" option added, remember those adverts are mostly paid-for by companies. And with rising costs (especially in energy and fuel), and sales dropping as people and other businesses cut-back, I'd imagine spending on ads will also see drops. So if Netflix were to see many customers switch to this new option, they could actually lose money if the ad-spend doesn't make up for sub losses.

    (It would be interesting to see a breakdown for some platforms, such as YouTube or Spotify, how much money they make from the sub side versus the ad-supported side.)

    • wright_is

      I agree, and in some regions, the stuff that is paid for on Netflix, HBO, Disney etc. is free-to-air, if you wait. For example, RTLII free-to-air channel has the rights to Game of Thrones in Germany.

      They are getting to the point, where they are running out of people in countries that are used to paying for content and trying to ramp up subscriptions in countries where people don't expect to pay a monthly fee for TV content.

      The younger generation is a little different, here in Germany, but many of the older generations (30+) have had free content (except for the annual TV license, which pays for 2 public channels, much like the TV license in the UK).

      Given the relative lack of expendable income and rising inflation, it is unlikely that such countries will create that much interest. Free with adverts, yes. Paid without adverts, yes. Paid with advert, no.

      Also, as soon as the adverts appear on TV, most people I know channel hop until the adverts are over, then switch back to the channel they were watching.

  2. grbreiu

    > We’re adding an ad tier for folks who say, ‘Hey, I want a lower price and I’ll watch ads,’

    No one says that.

    • sglewis

      Hulu. HBO Max. Discovery+. Paramount. Peacock. Many others. You may not say that. But it would appear many do. Or they’d stop offering it and others would stop introducing it.

  3. mattbg

    Streaming dynamics are changing.

    It's not a very profitable business. Netflix is one of the few that have to make it stand on its own merits.

    Other companies were alarmed by Netflix's market share and got into it. Despite not being a good business, the market was rewarding Netflix and were tolerating low profits and high debt on account of streaming being the way of the future.

    But... Netflix is now down 70% or so in market cap from its recent highs. They are having to implement more cost controls, cost-cutting, and more selectivity in what they fund.

    So, the market is no longer rewarding Netflix. They want to see profits once growth has tapped out. This will affect the value equations of everyone else involved in streaming indirectly.

    So, adding ads to subscriptions at a lower price point will give people a way to subscribe to Netflix and improve profitability. Getting a better handle on account sharing is another dimension.

    What can the others do? Raise prices. Netflix is giving them room to do that.

  4. hrlngrv

    The cynic in me wants to see the pricing in writing, else said cynic would figure the current price would apply to ad-supported service going forward with ad-free incurring a price increase.

  5. oscar1

    That won't help against subscription fatigue that is the root cause of dwindling market share.

  6. compuser

    "The report also mentioned that Netflix plans to implement new measures before the end of the year to prevent subscribers to share their passwords outside of their households."

    I wonder how many subscribers they'll lose because of this. I know a few people, not in the same household as each other, who share a Netflix subscription and split the cost, because they either think Netflix is way over priced (I agree with this, even though I do subscribe.) or they just can't affort it on their own.