Netflix's Co-CEO Ted Sarandos has confirmed what has been an open secret for a while; adverts are coming to Netflix.
According to the Hollywood Reporter, Sarandos confirmed reports that were leaked in the second week of May and revealed that a cheaper, advert-supported tier of Netflix is on the way.
Things have moved fast for Netflix in this regard in 2022. Back at the start of March the company Chief Financial Officer Spencer Neumann was asked about the prospect of an advert-supported tier and would only go as far as saying that he could “never say never” when asked about the idea, before swiftly adding that it "not something in [the brand’s] plans right now."
Then, on April 20, during an earnings call, Sarandos' partner-in-crime, Netflix's other Co-CEO Reed Hastings revealed that the streaming service was then “quite open” to the possibility of an advert-supported tier and could "figure it out over the next year or two.”
Now though, adverts are coming, with Sarandos saying onstage at Cannes Lions, a five-day industry festival which is taking place right now, that he wanted to gain a "a big customer segment." He also confirmed that the tier will be a separate offering and adverts will not start appearing on existing subscribers' Netflix accounts.
Asked about adverts on the platform, 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. We’re adding an ad tier for folks who say ‘hey, I want a lower price and I’ll watch ads.'”
He did not offer up any details about when adverts will hit Netflix, but, if previous reports are accurate, it will be before the end of 2022.
Sarandos was also bullish about the company's prospects, adding that Netflix has "...plenty of scale, and profitability and free cash-flow to continue to grow this business."
The move comes as Netflix looks to win back subscribers who have been priced out by a number of increases in the monthly cost of subscriptions, and attract people who've yet to give Netflix a go.
It is also looking to shore up revenue after it was announced in late April that it had lost 200,000 subscribers since the start of 2022, and, as a result, saw its value fall by more than $70 billion.
An advert-supported, lower-price tier isn't a revolutionary idea for a subscription service. Hulu, HBO Max, Paramount Plus and Peacock do it already and Disney Plus will be bringing in the option this year too.
Analysis: A new tier, the right move?
This was the only way of Netflix rolling out adverts onto its platform without causing a tidal wave of anger among its existing subscribers. The idea that subscribers who get the streaming service's basic offering would accept the prospect of adverts suddenly appearing halfway through an episode of Stranger Things is delusional.
Sarandos has only confirmed the fact that there will be adverts, he's not said how much the subscription tier that's ad-supported will cost, how often the adverts will appear, and how long the commercial breaks will last, in all likelihood, that's because Netflix executives haven't decided on that either.
There have been reports over the past week of Netflix meeting with the likes of Google, Roku, and Universal parent company Comcast as they try to map out their plans to include commercials on the service.
On the face of it, Netflix would be highly attractive to advertisers, with over 220 million subscribers worldwide and a huge amount of customer data to allow commercials to be targeted precisely to customers' age, location and likes and dislikes. Watch a lot of Netflix travel shows? You might well find yourself seeing adverts for sunny getaways. It could be that specific.
Netflix needs something to change. The cost of living crisis has seen people become choosier about their streaming services, and the price increase in March of this year will not have helped.
If adverts stop Netflix from having to cancel so many shows and laying off staff, then it will have been a good decision. We just need to see how much it costs and how many adverts they want us to watch...
