Netflix to Launch Lower-Priced Ad-Based Subscription Tier in Early 2023

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Netflix will launch its ad-based subscription model at a lower pricing tier in the “early part” of 2023, the streamer announced in its Q2 earnings letter to shareholders.

“Our lower priced advertising-supported offering will complement our existing plans, which will remain ad-free,” the company wrote Tuesday. “Our global ARM has grown at a 5% compound annual rate from 2013 to 2021, so it makes sense now to give consumers a choice for a lower priced option with advertisements, if they desire it.”

Netflix recently aligned in a partnership with Microsoft on their AVOD plans, and the launch of early 2023 is later than originally expected and which some analysts feared due to the partnership specifically with Microsoft over other partners such as Google, Comcast or Roku with more established infrastructures could delay the rollout of the pricing tier.

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Netflix said in the letter to shareholders that it would likely roll out the pricing tier in a handful of markets, as they’ve done with other new initiatives and features – and that it will specifically target markets where advertising spend is significant.

“Our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So,
our advertising business in a few years will likely look quite different than what it looks like on day one,” the company wrote. “Over time, our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners.”

On the subsequent earnings interview video released after the earnings letter, COO Greg Peters addressed that Netflix has already had early conversations with brands, holding companies and agencies and have seen “a lot of excitement” around aligning with Netflix’s original content.

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“That enthusiasm, that alignment is increasing my optimism, my excitement for getting this out there,” Peters said. ““The response that we are getting from a brand and advertiser perspective is quite strong.”

What’s more, co-CEO Ted Sarandos reassured that the vast majority of content on Netflix today would be able to be offered today with ads implemented immediately and that an ad-based tier can be launched without having to clear any additional content rights.

So while no specifics were given in terms of pricing or whether there would be multiple tiers offered, Peters also reiterated that how Netflix approaches its ad-based tier or tiers will evolve over time and “inform our plan structure.” But he made clear that they also want to make their pricing tiers as it related to ads “as simple as we can from a consumer facing perspective” and “not making it overwhelming for consumers.”

Netflix in its Q2 earnings saw its subscribers drop by 970,000, but the total subscribers lost was 1 million less than what it had projected to lose the prior quarter, leading to Netflix’s stock price to rise approximately 7%.

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