2022 has not been the best year for Netflix. The company saw subscriber loss for the first time in a decade. They are facing increased pressure as more companies get into the streaming business. They have created content-related controversies with some of the shows and movies they have aired. Many people find the offerings less interesting and compelling today than a few years ago. And, to add insult to injury, they are the most expensive streaming service in the industry. But the company has plans on how to attract potential subscribers who find the service too expensive.
Netflix has long been rumored to be adding an ad-supported tier to the service, and this week we got confirmation that this is exactly what is happening. The company's co-CEO Ted Sarandos said,
We are 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.'
So, what does this mean for users? As of right now, it means absolutely nothing for subscribers who don't want to have ads because this will be a new subscription tier. Instead, this is going to be for subscribers who left because the service was too expensive for what they got, or people who have never subscribed, or even people who have considered unsubscribing after the final episodes of Stranger Things release in a few weeks.
The details of the company's plans are still mostly unknown. Reports suggest that the current plan is to run pre-roll ads before series and films, though that is partially speculatory, and always subject to change. It is likely that, if the company sees success with pre-roll, they will begin implementing mid-roll and post-roll ads, as well, to bolster revenue. The one piece of information that we are most interested to learn is what the discount will be to get Netflix with ads.
With Hulu, the price difference is $6 per month. But that is also a discount of 46 percent when compared to the $12.99 ad-free price. It we apply that same rate to the Netflix $9.99 base plan you would get an ad-supported tier of only $4.59. However, the base plan only offers standard definition video, and is not popular among subscribers. The reality is that Netflix is more likely to offer the ad-supported tier to the HD version of the service, which currently costs $15.49. That would make the ad-supported version somewhere in the $7.12 range, which is a more likely place for the company to land.
How will this work?
Again, everything is still speculative, but it seems like you'll be forced to watch ads before your program starts. But Netflix isn't an ad company and getting into advertising sales would be a big and expensive lift - something unlikely for a company looking to save money. So, the most likely situation is for Netflix to partner with an existing advertising agency.
The Wall Street Journal reports that the company is currently in discussion with three companies to serve ads for this new tier: Comcast's FreeWheel, Alphabet's Google, and Roku - with Comcast and Google being the top contenders.
FreeWheel is a fairly large media advertising agency. They offer solutions for all of the major platforms, making it a solid partner for Netflix. Google obviously has a lot of experience serving ads, on Search and even YouTube. Both would be good solutions partners for Netflix, and with their size and scale, could even be global partners to launch the service, though not necessarily. However, Google always carries a dark cloud with it, especially with advertising, as consumers don't trust them universally.