In the age of streaming, Netflix has largely remained steadfast in two things: no ads and full season drops. But the time has come for Netflix to make some serious changes. In a Q1 shareholder letter, the streaming platform acknowledged it lost subscribers for the first time in a decade. It lost 200,000 in Q1 and is on track to lose up to two million by the end of Q2. But in the company’s Q1 2022 Earnings Interview, which is on YouTube, executives announced the subscription shake-up. Netflix is officially adding an ad-supported tier, and it has now arrived. And most shocking of all, it seems like the addition of the ad tier has had a positive impact on Netflix’s subscriptions. In fact, Netflix’s ad-tier has finally made some gains. But consumer take note, Netflix is moving to widen the gulf in price between its ad-free and ad-supported offerings.
Check out the “Subscription Plan” heading for the full details on what’s happening.
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Netflix’s Ad-Supported Plan Gets Early Arrival
This is a stark change of pace, considering co-founder and co-CEO Reed Hastings—a long holdout on ad-support plans—indicated the new subscription would arrive in a year or two. During Netflix’s Earnings Interview in April 2022, Hastings admitted the company needed to embrace ads in one way or another in order to make money.
One way to increase the price spread is advertising on low-end plans and to have lower prices with advertising. Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice. Allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense. So, that’s something we’re looking at now, we’re trying to figure out over the next year or two. Think of us as quite open to offering even lower prices with advertising as a consumer choice.
And now, the ad-supported tier, called Netflix Basic, has rolled out, as of November 3, 2022. Netflix’s new ad tier debuted in eight countries. According to The Hollywood Reporter, in the first quarter since the addition of the ad-tier, Netflix saw its subscribers increase by 7.66 million users. And most recently, it was reported by Bloomberg that Netflix’s ad-tier had reached one million subscribers. And these subscribers are not users who have downgraded their accounts, but lapsed or new Netflix users. In addition, according to Gizmodo, Netflix’s ad-tier sign-ups rose from 9% to 19% in January. This means it has more subscribers than Netflix’s Basic option.
It looks like the ad-tier, and Netflix’s other cost-impact solutions, such as exploratory paid account sharing, are here to stay.
What Does Netflix’s Ad-Tier Include?
In an October press conference, Netflix confirmed a small number of shows and movies aren’t available on Basic with Ads. Netflix is working on addressing that. As far as other limitations for Basic subscribers: the maximum video quality will be 720p / HD, and subscribers will not be able to download content.
According to reports from Deadline and Variety, some notable TV shows and movies are not available on Netflix’s ad tier. Among other pieces of content, House of Cards, Arrested Development, Peaky Blinders, New Girl, Gray’s Anatomy, The Crown, Cobra Kai, How to Get Away with Murder, The Magicians, 28 Days, and Skyfall cannot be watched on Netflix Basic with Ads.
What Does Netflix’s Ad-Tier Cost?
The same press conference shared the cost of the ad-supported tier: for the US, it’s $6.99/month. Anyone signing up for Basic with Ads will have to consume four to five ads per hour. They’ll last anywhere from 15-30 seconds. This is not terribly different than a service like Hulu. However, Netflix hinted the price may go up after launch.
Netflix’s Current Subscription Plans
Currently, Netflix’s subscription model offers three different rates: basic, standard, and premium. Here’s how the tiers break down and how they might evolve:
The Basic Plan Is No Longer Available
Recenly, the cheapest model, the basic subscription, cost $9.99 per month. Subscribers could only watch content on one device—TV, computer, phone, or tablet—at a time. Netflix calls its video quality “good” with 480p resolution.
However, Netflix has now removed the Basic plan option for subscribers in the US and UK after testing its removal in Canada. Netflix has confirmed the option to subscribe to the Basic tier, as mentioned, the cheapest ad-free offering, is no longer available for new subscribers. However, this change will not affect those already subscribed to the Basic Netflix ad-free tier. Existing subscribers will be able to hang on to the lower-priced ad-free tier.
A page from Netflix support shares, “The Basic plan is no longer available for new or rejoining members. If you are currently on the Basic plan, you can remain on this plan until you change plans or cancel your account.” This change means subscribers must either select a more expensive ad-free plan or choose the ad-supported option instead. In effect, Netflix has increased the difference in cost between the ad-supported and ad-free plans.
The middle price point, standard costs $15.49 per month. As the middle child the video quality is better than in the basic plan, with 1080p resolution. (But it pales in comparison to the premium plan.) Plus, subscribers can watch content on two devices—TV, computer, phone, or tablet—at a time.
Currently, Netflix’s top subscription package, this tier costs $19.99 per month. And with a 4K and HDR resolution, it features the best video quality the streaming platform offers. And with its heftier price, more people can watch at once. Subscribers can watch content on four devices—TV, computer, phone, or tablet—at a time.
Basic with Ads
The streamer notes that its existing tiers will remain ad-free, and an ad-supported tier will act as a complement to these options. Basic with Ads is $6.99/month. Basic with ads can also now be accessed through an Apple TV.
How Netflix’s Password Sharing Crackdown Factors in
Talk of an ad-supported tier comes as Netflix continues to test a plan to crack down on password sharing in Costa Rica, Peru, and Chile. The streaming service is rolling out ways to cut off sharing passwords between households. In doing so, Netflix is testing ways to offload extra users accessing an account in a home they don’t live in. According to The New York Times, this crackdown strategy will go into effect globally around the same time the new subscription tier launches.
In the Earnings Interview, Peters made it quite clear that this strategy will eventually go global in the next year or so. It certainly would make sense to have an even cheaper model design underway as Netflix looks to finally offload the person using their neighbor’s sister’s ex-boyfriend’s account. And by adding another model–one hopefully in a shiny, feasible price range—the streaming platform could retain users but actually, bring in the revenue. Still, there’s a lot for the platform to work out in the meantime. But as long as Netflix’s ads aren’t overwhelmingly loud, people may just accept them and an ad-supported tier.
Originally published on April 20, 2022.