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Will Netflix Cheaper Ad-Tiered Plan Mean More Subscribers?

Nov 28, 2022

Netflix, looking to tap into a new market, recently launched an ad-supported plan at a lower price than its other plans. As the number one on-demand streaming service, Netflix introduced this expanded service offering in the U.S. and 11 other countries, including Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico and Spain. The streaming giant now has subscription plans ranging from Basic with Ads for $6.99/month to Premium for $19.99/month.

There are many limitations when subscribing to the Basic with Ads plan; approximately 5% to 10% of overall content won't be available for users with this plan. This is due to various licensing restrictions across countries. The video resolution will be 720p rather than 1080p, and subscribers do not have the ability to download titles for offline viewing.

Subscribers of this new plan can expect 4-5 minutes of ads every hour of content. For comparison, broadcast TV typically has 12 minutes and cable TV has 18 minutes of advertising per hour. Netflix’s significantly less ad time is why some consumers do not mind watching ads if it means paying a lower price.

Netflix’s expects to tap into a market of below median income consumers in the countries where it has launched this ad-tier. The goal is to convince a subscriber who's considering unsubscribing or a consumer who has yet to subscribe that the $6.99 tier is the best option. Meanwhile, other streaming services are following suit and offering ad tiers. Disney+ is hoping to launch its Basic with Ads plan for $7.99 in December 2022.

With many streaming services available to consumers, Netflix is facing more domestic competition than ever, along with more crowded markets internationally in Europe and Canada. It’s not just about growing the number of subscribers, rather, it is about keeping those subscribers when people are trying to cut back on the number of subscriptions for which they regularly pay.

There are some concerns that consumers will trade down. However, analysts say that it is not a spin-down risk, it is a spin-up opportunity. This could pose an opportunity for Netflix to secure more revenue, increase profits, and capitalize from ads to remain at the top of streaming pile.

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Richard Nachmias

Richard Nachmias is an Audit Partner and Partner-in-Charge of the firm's Sports and Entertainment Group. Rich has more than 25 years of experience providing services to companies in the media and technology industries.

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