The past few months have been hard for Netflix. The company recently published its first-quarter revenue report for 2022, which indicated that it lost nearly 200,000 subscribers globally. This was the first time Netflix reported slow growth. In a letter to its shareholders, Netflix said, Our revenue growth has slowed considerably,” adding that things could get much worse this year, with the company potentially losing millions of subscribers in the coming months. Foreseeing slow growth and lower revenue, Netflix had to respond.
During its earnings call, Netflix CFO Spencer Neumann announced that the company would explore the idea of ad-supported plans over the “next year or two”. However, a new report from The New York Times claims that Netflix has told its employees that it will launch an ad-supported tier sometime during the last quarter of 2022. This is much earlier than we anticipated, but it is quite understandable given the streaming giant’s viewership goes up during the holiday season.
“In the note, Netflix executives said they were aiming to introduce the ad tier in the final three months of the year. […] The note also said Netflix planned to begin cracking down on password sharing among its subscriber base around the same time.
Even though the ad-supported tier goes against Netflix’s original vision, it seems that the company will have to opt for it, no matter what, due to tremendous pressure from all sides. In spite of the fact that Apple’s TV+ streaming service is much younger than Netflix, it won its first Academy Award recently. Apple’s streaming service continues to offer a much smaller but star-studded selection of movies and TV shows. On the other hand, streaming services like Hulu, Disney+, and HBO are signing top talents from the industry who, if used well, can drive subscriber growth.
Netflix is currently somewhere in the middle of this. The company has been trying to raise money to sign high-end stars and improve its content, but in doing so, it has raised its prices a lot. It seems that the company now wants to take the “ad-supported tier” route, and even though it sounds like a step back, we still believe that it will prove to be beneficial for its subscribers in the long run. Here are a few reasons why Netflix’s ad-supported plan could prove to be a blessing in disguise.
Ad-supported tier wouldn’t be a bad idea after all
Netflix prices have been going up and up in recent years. At the moment, its Premium plan in the United States costs $19.99 a month, while its Standard plan costs $15.49 per month, and the Basic plan (that supports only SD streaming) is priced at $9.99 a month. Netflix CEO Reed Hastings has previously said that the company has invested increased capital in improving its content (both quality-wise and quantity-wise) and bringing new features to the platform. Still, the regular price increases have also driven away a lot of customers.
An ad-supported tier could help the company scale more evenly. It could help the company increase revenue — allowing it to sign renowned artists — and gain more subscribers side by side.
If Netflix reduces the price of its plans, for showing ads, by even a small margin, say about 25-30%, it could end up gaining a lot of new paid subscribers. Many people have been holding back or have unsubscribed from Netflix due to its high prices. An ad-supported tier could help the company bring back its lost subscribers and gain new ones along the way.
Other services, such as HBO and Hulu, already offer ad-supported plans on their services. They have, in fact, shown how an ad-supported tier is a viable business strategy in this field. In 2022, especially with such high inflation, forcing the customers to pay more just so that they can experience content ad-free doesn’t make a lot of sense — it should be the customer’s choice. And, in the end, having more options is always a good business strategy.
If Netflix is jumping on the ad-supported bandwagon, the company should roll out the ads in such a manner that they don’t hinder with the core user experience that it currently provides and price it (a bit) sensibly. What are your thoughts on Netflix adding ad-supported tiers to the service? Would a cheaper ad-supported Netflix plan convince you to pay for the service? Let us know in the comments section below!