On Thursday, the co-CEO of Netflix, Ted Sarandos, confirmed that the company would start experimenting with a lower-cost, ad-supported subscription tier. Speaking at the international ad festival Cannes Lions, Sarandos revealed that the streaming company is in talks with a number of potential partners to help ease its entry into the advertising industry. Comcast, NBCUniversal, and Google are reportedly some of those partners.
Netflix confirms ad-supported plans
As the competition among entertainment services heats up, the streaming behemoth lost customers for the first time in ten years came under fire for cracking down on password sharing, and fired over 150 staff members (or about 1.5 percent of its global workforce), Sarandos said.
“We’ve left a big customer segment off the table, which is people who say, “Hey, Netflix is too expensive for me and I don’t mind advertising. We’re adding an ad-tier. We’re not adding ads to Netflix as you know it today.”
Netflix co-CEO Reed Hastings hinted at the advertising strategy during a first-quarter earnings call in April, saying that commercials could be coming in the next year or two.
“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,” he said. “And allowing consumers who like to have a lower price, and are advertising tolerant, to get what they want makes a lot of sense.”
A lower-cost option for subscribers
Netflix lost 200,000 customers in the first three months of 2022, and the company predicted even more losses in an April shareholder letter. The company’s stock price has dropped more than 70% this year (compared to a 21% drop in the S&P 500), wiping out about $70 billion of its market capitalization and leading shareholders to file a lawsuit alleging that Netflix misled investors about decreasing subscriber growth.
Netflix is now hoping to increase revenue by adopting advertising. And it’s not the only one. Hulu and HBO Max offer ad-supported plans that are less expensive than their commercial-free offerings, while Disney+ stated in March that it would launch an ad-supported subscription tier in late 2022.
With Netflix’s current monthly subscription model, customers in the United States can use their account on one, two, or four screens at the same time, with costs corresponding to the number of screens available—ranging from $9.99 to $19.99. The new ad-supported tier will provide a lower-cost option for subscribers willing to endure advertisements to pay less.