Netflix co-CEO Ted Sarandos confirmed what was an open secret for a while; ads are coming to Netflix.
According to the Hollywood ReporterSarandos confirmed reports that leaked in the second week of May and revealed that a cheaper, ad-supported tier of Netflix is on the way.
Things quickly changed for Netflix in this regard in 2022. In early March, the company’s CFO Spencer Neumann was asked about the prospect of an ad-supported tier and only went so far as to say that he “could never say never.” when asked about the idea, before quickly adding that “it’s not something in [the brand’s] plans 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 “pretty open” to the possibility of an ad-supported tier. and could “figure in the next year or two.”
Now, though, the announcements are coming, with Sarandos saying onstage at Cannes Lions, a five-day industry festival now taking place, that he wanted to win over a “large segment of customers”. He also confirmed that the tier will be a separate offer and ads will not start appearing on existing subscribers’ Netflix accounts.
Asked about the ads on the platform, Sarandos said: “We leave a large segment of customers off the table, which are the people who say, ‘Hey, Netflix is too expensive for me and I don’t care about advertising. We’re adding ads to Netflix as you know it today. We’re adding an ad level for people who say ‘hey, I want a lower price and I’ll watch ads.’”
He didn’t give details on when the ads will hit Netflix, but if previous reports are accurate, it will be before the end of 2022.
Sarandos was also optimistic about the company’s prospects, adding that Netflix has “…enough scale, profitability and free cash flow to continue to grow this business.”
The move comes as Netflix seeks to win back subscribers that have been crippled by several increases in the monthly cost of subscriptions and to attract people who have not yet tried Netflix.
The company is also looking to boost revenue after it was announced in late April that it had lost 200,000 subscribers since the start of 2022 and, as a result, has seen its value drop by more than $70 billion.
A lower ad-supported price tier is not a revolutionary idea for a subscription service. Hulu, HBO Max, Paramount Plus and Peacock already do this and Disney Plus will also bring the option this year.
Analysis: A new level, the right move?
This was the only way for Netflix to launch ads on its platform without causing a wave of anger among its existing subscribers. The idea that subscribers who get the streaming service’s basic offer would accept the prospect of ads suddenly appearing in the middle of an episode of Stranger Things is elusive.
Sarandos only confirmed the fact that there will be ads, he didn’t say how much the ad-supported subscription tier will cost, how often the ads will appear and how long the commercial breaks will last, likely because Netflix execs haven’t decided that either.
There were reports in the last week of Netflix meeting with companies like Google, Roku and Universal Comcast as they try to map out our plans to include commercials in the service.
Given this, Netflix would be highly attractive to advertisers, with over 220 million subscribers worldwide and a massive amount of customer data to allow commercials to be targeted precisely to the age, location, and likes and dislikes of customers. Watching too many Netflix travel shows? You may well see ads for sunny getaways. It can be so specific.
Netflix needs something to change. The cost-of-living crisis has made people more demanding about their streaming services, and the price hike in March of this year hasn’t helped.
If the ads stop Netflix from canceling so many shows and laying off employees, it will have been a good decision. We just need to see how much it costs and how many ads they want us to see…