After years of resistance on its streaming platform, Netflix is introducing ads on its service.
Netflix co-founder and head Ted Sarandos confirmed on Thursday, June 23 that the company will begin testing a low-cost, ad-supported subscription plan. The streaming company is reaching out to several potential partners to facilitate its entry into the world of advertising, Sarandos said. These partners would be Comcast, NBCUniversal and Google.
Sarandos’ confirmation comes amid a tough year for Netflix. As competition between entertainment services intensifies, the streaming giant has lost subscribers for the first time in a decade, faced backlash for cracking down on password sharing and laid off more than 150 employees (about 1.5% of its global workforce).
Sarandos said his company has left out a market segment that is willing to pay less for a subscription that includes ads. As Sarandos explains:
“We left out a big customer segment, which was people who say, ‘Hey, Netflix is too expensive for me and I don’t mind advertising,’” Sarandos said.
“Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription,” said Reed Hastings, co-founder and director of Netflix. “But as much as I’m a fan of that, I’m a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and tolerate advertising to get what they want makes a lot of sense,” a- he also added.
Then The New York Times reported in May that Netflix had told its employees that an ad-based plan could launch by the end of the year, earlier than expected.
Netflix lost 200,000 subscribers in the first three months of 2022 and predicted bigger losses to come in an April shareholder letter. The company’s stock price has fallen more than 70% this year (vs. the S&P 500’s 21% drop), wiping out around $70 billion of its market capitalization and prompting shareholders to sue. lawsuit alleging Netflix misled investors about declining subscriber growth.
Netflix hasn’t revealed when it will launch its ad-supported tier, but it is reported that it could be available by the end of 2022.
Now Netflix’s hope is to generate more revenue by embracing ads. And it’s not the only one. Competitors like Hulu and HBO Max already offer ad-based plans that are cheaper than their ad-free services, while Disney+ announced in March that it would roll out an ad-supported subscription tier in late 2022.
Ads on Netflix Could Change the Entire Ad Ecosystem
If Netflix launches an ad-supported model in 2022, this change could force marketers to re-evaluate how they allocate their advertising budgets.
The Netflix and Disney+ platforms could also absorb half of the growth in the online video advertising market. The 50% being all social networks like Instagram, Facebook or TikTok. Television channels could quickly find themselves in the lurch. Especially since Netflix has much more advanced targeting capabilities. Altitude Strategies will follow the evolution of these streaming platforms with great interest.
