After years of denying the possibility of advertising on the streaming platform, Netflix is wasting no time getting the ball rolling on its lower-priced ad-supported tier, which could appear on the platform in the next six months or so.
As reported by The New York Times, Netflix told employees that the streaming giant was looking to bring the ad-supported tier to the platform by the end of the year.
The company had a change of heart in its last earnings call when Co-Chief Executive Officer Reed Hastings announced, “ … one way to increase the price spread is advertising on low-end plans and to have lower prices with advertising. And those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much I’m a fan of that, I’m a bigger fan of consumer choice.”
Netflix has grown its brand by delivering a better, ad-free consumer experience. Introducing ads is a huge shift for the streamer and shows just how much the competition is heating up.
In the earnings call, Hastings said that it would take a couple of years before the ads produced “material volume” — that is, paid off in terms of added revenue from price-sensitive subscribers. But the exec hinted that the company was keen to launch ads sooner rather than later.
For instance, when asked if Netflix would first test ads in a few small markets at first — which is how Netflix typically tries out new products — Hastings said the company would not need to do so when it came to launching ads.
“No,” he replied, in response to the investor’s question about tests. “I think 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 — that all those companies have figured it out … So I think we’ll really get in.”
The company additionally pointed out that it’s a lot easier to get started with an ad-supported tier than it was in years past, as it can now leverage other companies’ services for managing the ad matching and data portion of the business, and it could simply serve as a publisher.
Given Reed’s comments and the current state of its business, it’s not surprising to find Netlix moving quickly to adopt the ad-supported tier.
Netflix declined to comment on The NYT’s report of a possible Q4 launch, but stressed that ad-free plans would still be available to those who preferred to view Netflix without commercials.
It was also reported in this note that the ad-supported tier would be introduced “in tandem with our broader plans to charge for sharing.”
In the Q1 earnings report, Netflix had told investors about its loss of 200,000 subscribers in the first three months of 2022, which helps explain why the company plans on charging members engaged in password sharing.
Additional reporting: Sarah Perez