We’ve known for a while now that Netflix plans to roll out a cheaper, ad-supported tier sometime in the near future. Now after their second quarter earnings report, we are finally getting some new details.
This article will highlight everything you need to know about Netflix’s ad-supported tier including its potential cost, lineup of shows, and just how many ads we can expect.
When is it coming?
“The early part of 2023,” according to the letter to Netflix shareholders dated July 19th, 2022. The rollout will be gradual. The letter states that they’ll “likely start in a handful of markets where advertising spend is significant.”
This keeps up with the way they typically rollout new features or changes to the Netflix app. For example, Netflix rolled out their top 10 lists in the UK before including them worldwide. Netflix is also testing out a live channel called Direct that’s only available in France for the time being.
Will everyone have ads on Netflix?
Nope. According to Netflix this new ad-supported plan will “complement,” instead of replace, their existing plans. Their current plans (referred to as Basic, Standard, and Premium) will remain ad-free.
This setup implies that current customers would have to downgrade their membership to get the the ad-supported tier. The company said that it will “take some time” to grow the subscriber base for this new plan. It will also require a trial and error process as they sort out what works best for both their customers and advertisers.
How much will it cost?
Nothing is official yet. It’s reasonable to assume it will be between $5 and $10 a month, though, since we know that the ad-supported tier will be cheaper than the other plans. Their lowest-priced tier is the “Basic” plan for $9.99 a month in the US.
The price difference between the ad plan and the Basic plan would match the same pricing structure we see with Paramount+. Their ad-supported Essential plan is $4.99 a month, while their ad-free Premium plan is $9.99 a month.
The former VP of Product Management at Netflix has suggested a $5 a month price point seems most likely.
Will it have the same shows and movies?
Netflix’s ad-supported tier will have most, but not all, of their current shows and movies. The reason for this is because they have to work out deals with third-party companies regarding how their ad revenue is split.
This won’t be limited to library titles sourced from other outlets but Netflix Originals as well. Many people might not realize some of the biggest Netflix Originals are produced by studios other than Netflix.
To name a few examples: The Crown is produced by Sony Picture Television, Universal makes Russian Doll, and Warner Bros. produces You. According to The Wall Street Journal, Netflix is in talks with all of these studios and the deals are yet to be finalized.
According to Netflix co-CEO and Chief Content Officer Ted Sarandos these negotiations will lead them to “clear some additional content, but certainly not all of it.”
How many ads will there be?
Fewer than you’d think. At least that’s what a report from Business Insider claims. Netflix reportedly wants to have fewer ads per hour than it’s competitors like Hulu and HBO Max.
If you’re curious, Hulu has an average of 12 ads per hour for Hulu Originals and almost 14 ads her hour for licensed content on their ad-supported plan. HBO Max, on the other hand, has an average of 9.3 ads per hour with their ad-supported plan. For HBO Max, this translates to less than four minutes of ads per hour.
Should Netflix stick with this strategy, that would mean there would be no more than 2-3 minutes of ads per hour.
Another thing noted by the Business Insider report and suggested by analysts from Wells Fargo is that it is highly unlikely Netflix will place ads in the middle of programming. Rather they will air in blocks before and after a show starts.
This is due to both technical challenges of their ad platform that’s being developed by Microsoft, as well as licensing issues. Wells Fargo analysts believe that Netflix does not have the rights to run ads mid-roll for their licensed content, even for shows that already contain ad breaks.
Why is Netflix doing this?
The short answer is money. The longer answer is that they are attempting to keep their shareholders happy amidst a drop in subscribers. That being said, the second quarter earnings report was better than expected, despite a drop of nearly one million members.
By adding a cheaper plan, Netflix is hoping to attract new cost-conscious customers. They will also gain a new revenue stream from advertising.
Greg Peters, Chief Operating Officer for Netflix, has indicated that the they expect the economics for the new ad-supported tier will make monetization “equal or maybe even better than what we would see on the comparable (ad-free) side.”
Time will tell if this new plan is a financial success or failure.
And what about the crackdown on password sharing?
That’s still happening, too. They have tested out an approach in some Latin American countries where password sharers are required to pay an extra $3 a month to add a new member or home to their account.
In their earnings report, the company said they are “encouraged” by what they’ve seen with these paid sharing options in Latin America. They plan to launch this in other regions sometime in 2023.
So what does all this mean?
Based on the information we have so far, it doesn’t look like there’s much to worry about if you’re a Netflix subscriber. If you keep your account as is, you still won’t have ads on Netflix.
Only new members who sign up for Netflix’s ad-supported tier (or current members who downgrade) will get ads.
People who subscribe to this new plan will play less money and will only see a few minutes of ads per hour that won’t interrupt anything mid-show.
Of course we won’t have all the details until it officially rolls out next year. Until then, we’ll keep you informed here at Shall I Stream It!