The cat is officially out of the bag: ads are coming to Netflix.
Company co-CEO Ted Sarandos confirmed as much at this year’s Cannes Lions industry festival, telling reporters that a cheaper, ad-supported Netflix tier is definitely on the way. The admission follows months of speculation – we first reported on the possible introduction of ads on Netflix back in March – and news that the streaming service is losing subscribers for the first time in over a decade.
In typical internet fashion, some quarters of social media have erupted in protest against the move, with many existing Netflix customers pledging to cancel their subscriptions if any form of ads were to pop up on their version of the streamer now or in the future.
But the angry mob should put down their pitchforks – ads on Netflix will only appear if new and existing customers opt in to the upcoming subscription tier. What’s more, we think these optional commercials are actually a great thing for the health of the platform moving forward. Allow us to explain:
What, exactly, is happening?
Essentially, Netflix wants to tap into an area of the streaming market that its competitors – including HBO Max and Hulu – are already profiting from.
"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,” co-CEO Sarandos said at Cannes Lions, when asked about the company’s decision to embrace ads. “We're 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, Netflix plans on introducing an ad-supported subscription tier for customers who would be willing to pay a lower monthly price at the expense of ad-free viewing. This tier will be entirely optional, and ads won’t start appearing on existing subscribers' Netflix accounts.
We’ll say that again: ads won’t start appearing on existing subscribers' Netflix accounts.
In all likelihood, Netflix’s ad-supported tier will be comparable to HBO’s own ad-supported tier on HBO Max, which was introduced on the service last year. Disney is also planning on introducing a similar plan on Disney Plus later in 2022.
"It's pretty clear that [this model] is working for Hulu,” Netflix co-CEO Reed Hastings said during a May earnings call interview. “Disney's doing it. HBO did it. I don't think we have a lot of doubt that it works. All those companies have figured it out, I'm sure we'll just get in and figure it out as opposed to [testing] it and maybe [doing] it or not [doing] it."
It’s not yet clear how much Netflix’s ad-supported subscription tier might cost, nor the parameters this more affordable package could place on the availability of content, though HBO’s model provides a useful blueprint (for prospective customers, as well as Netflix itself).
For $9.99 (around £8 / AU$14) per month, subscribers to the ad-supported version of HBO Max can access the same library of movies and TV shows as those on the standard tier, albeit without the ability to download content for offline viewing or stream it in higher quality than 1080p.
There’s been no official word yet on how much Disney’s ad-supported tier will cost, though we’d anticipate similar parameters placed on the content available to subscribers. Disney Plus bosses have, however, revealed that ads on its streamer will be capped at four minutes per hour of content and restricted when young children are watching via the platform’s kid-friendly user profiles. Netflix would be wise to mimic this hardline approach if it hopes to keep pace with its largest competitor.
At present, Netflix bosses have only confirmed that an ad-supported subscription tier – one powered by a partnership with Microsoft – is coming to the service, and that not every movie and TV show in the streamer's library will necessarily be included in the new package ("there are some things that [wouldn't be included], that we are in conversation with the studios on," co-CEO Sarandos told investors in July).
They’ve not yet revealed pricing details, nor how often ads will appear or how long commercial breaks will last. We’ll share more information when we get it.
When is this ad-supported tier coming?
Netflix bosses have confirmed that this ad-supported tier won't hit Netflix until 2023.
"We recently announced Microsoft as our technology and sales partner and we’re targeting to launch this tier around the early part of 2023," the company revealed in its latest investor report.
For our money, optional ads will arrive on the streamer sometime between February and April next year.
Could ads on Netflix be a good thing?
In our opinion, yes. Netflix’s decision to embrace ads is, of course, motivated by a desire to improve the company’s financials, but the move would also offer greater choice to customers who would prefer to pay a little less for Netflix at the expense of ad-free viewing.
Given how non-intrusive Disney’s equivalent ad-supported tier sounds, too, Netflix has an opportunity to do ads the right way – both in terms of the type of commercials shown and the audiences exposed to them.
“As Netflix approaches this new territory, it should continue its famed, relentless focus on user experience,” Kai Henniges, CEO & Co-Founder at Video Intelligence, recently told TechRadar. “For some, digital advertising has been synonymous with flashy banner adverts, irrelevant advertising content and irritating pop-ups, but Netflix is in a prime position to leverage new technology to ensure adverts not only provide bottom-line advantages but also satisfy consumers with a tailored experience and real value.”
“If Netflix cleverly analyses the meaning of its content – its topics, verticals, or style – it will be able to contextually match advertising demand to it. Or to put it simply – Netflix should look to deliver ads that are relevant to the program or film they are shown during.”
But even if you’re not sold on the idea that ads can be implemented tastefully, an ad-supported Netflix tier would give the streamer some much-needed revenue that could – and should – save your favorite shows from being axed.
As TechRadar’s US Editor in Chief, Lance Ulanoff, put it in a recent article: “As soon as Netflix unveils Adflix (TM), its subscription numbers will balloon again. While it will need more scale (more subscribers) to achieve similar revenue numbers to what it might have had with full-boat subscribers, I think the streamer's cashflow problems will quickly end.
“What will follow is a Netflix Spring, with tons of new content initiatives, maybe an Intellectual Property acquisition or two (surely, it will buy Roku and the Quibi library by then) and the end of unexpected show cancellations.”
As Paramount Plus and HBO Max have proven, a large portion of subscribers will embrace ads if given the opportunity to do so – the latter’s customer base is almost 30% ad-supported after less than one year.
So, while ‘ads on Netflix’ sounds like a corporate monster rearing its ugly head, both the streamer and its frustrated customers will, we think, benefit from the move.