Major changes are on the horizon for Netflix. The company announced in early May that ads may be coming to the network by the end of 2022. This lower-priced, ad-supported tier is being fast-tracked after the company reported a loss of 200,000 subscribers during Q1 2022. Expectations are that Netflix is anticipating an additional loss of 2 million subscribers in the months to come.
Ad-supported streaming is nothing new in the industry; however, Netflix has always stated that commercials would never be seen on its streaming platform – until now. Share price dropped significantly, and with the loss of subscribers, it signaled to management that it was time to introduce another revenue stream. Netflix management cited competitors like HBO and Hulu that have been able to “maintain strong brands while offering an ad-supported service. Every major streaming company, excluding Apple, has or has announced an ad-supported service. For good reason, people want lower-priced options.”
Additionally, Netflix has been in talks with The Trade Desk (a programmatic DSP) to help the company build out an advertising infrastructure externally with the ad-supported plan. It is interesting to note that David Wells, former CFO of Netflix, is a board member of The Trade Desk and has been in touch with Netflix for years.
In addition to ad-supported streaming, the company also plans to crack down on password sharing among its subscriber base around the same time. Netflix announced that it intends to begin charging higher prices to subscribers who share their account with several people. The company estimates there are approximately 100 million households that access Netflix without a subscription. Considering that Netflix’s current subscriber base is about 222 million households, a potential of 100 million new subscribers is huge.
It will be interesting to see how Netflix plans to integrate ads into its offering, from price points to how many ads are served per hour. Netflix competitors show between eight and 23 ads per hour. That means subscribers watch an average of 10 minutes of ads every hour. Experts feel that Netflix will likely adopt the same rules for its ad-supported tier.
They also estimate that the Netflix ad-supported plan is likely to cost between $5 and $7 per month, will only allow subscribers to stream on one device simultaneously, and will have about 10 minutes of ads every hour. However, this format may not be enough to attract many new users. Subscribers have continually complained about Netflix’s quantity-over-quality philosophy. To gain and retain subscribers, Netflix may need to make some adjustments in that department as well.