Netflix considers cheaper ad-on option to stem subscribers’ loss
Reed Hastings, co-CEO of Netflix has finally announced plans to incorporate ads as a way to increase price spread and stem the loss of subscribers. Hastings said this on Tuesday in response to Greg Peters, Chief Product Officer, Netflix’s address during the company’s first-quarter earnings interview, which was posted to YouTube.
“One way to increase the price spread is advertising on low-end plans and to have lower prices with advertising,” he said. “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 as I’m a fan of that, I’m a bigger fan of consumer choice. Allowing consumers who would like to have a lower price and are advertising-tolerant to get what they want makes a lot of sense. So, that’s something we’re looking at now, we’re trying to figure out over the next year or two. Think of us as quite open to offering even lower prices with advertising as a consumer choice.”
Coming from Hastings who is an avowed anti advert advocate, the change may not be unconnected to the loss of 221.6 million subscribers as reported during the first quarter earnings interview.
Though no specific outline was offered for when or how advertising would be phased in, Hastings however admitted it is “not a short-term fix, because once you start offering a lower-priced plan with ads as an option, some consumers take it. And we’ve got a big installed base that probably is quite happy where they are. It would phase in over a couple of years in terms of being material volume.”
However, the announcement of the company’s intention to court adverts just weeks before the start of the industry’s annual “upfront” ad sales season may be strategic. Few buyers expect Netflix to vie suddenly for ad dollars with Disney, Fox, NBCUniversal, Warner Bros. Discovery, and Paramount Global.
According to Mike Law, CEO of Carat, a media-buying outfit owned by Dentsu, “It would be a very quick turn. “They have a significant footprint of users, so it’s not like they’re one of the newcomers, where they haven’t formed a sizable subscriber base. They have a huge amount of reach, so that’s a positive. But what does their ad model look like? How much audience data are they willing to share? Building the infrastructure would take some time.”
Addressing the necessity or otherwise of testing the new decision in a few markets or for a subset of subscribers, Hastings said, “the verdict is in. Hulu has scaled its ad business over 15 years, adding an ad-free tier five years ago, and Disney+ and HBO Max have gone from pure subscription to having ads. “I don’t think we have a lot of doubt that it works,” he said. “I’m sure we’ll just get in and figure it out as opposed to testing it and maybe get in or not. … I think we’ll really get in.” he also emphasised that the Ad-free options will remain in place.
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