Netflix and other streaming platforms are nudging subscribers toward ad-supported tiers as ad-free options experience price hikes. For companies like Disney, whose streaming offerings are a critical component of their financial future, striking a balance between generating revenue and maintaining a broad audience reach has become essential.
Keeping ad-supported tier prices the same while raising others allows services to remain accessible to a broad audience by catering to people who are budget-conscious.
For that reason, Disney CEO Bob Iger assured investors during the company’s August 9 earnings call that although Disney+ and Hulu’s ad-free tiers would increase by $3 each per month, the ad-supported offerings would remain unchanged. The move allows the service to remain accessible to a broad audience by catering to people who are budget-conscious.
This approach is by no means isolated to Disney. Other streaming giants like Netflix have also adjusted their pricing structures to place emphasis on their ad-supported tiers. In July, NBCUniversal introduced a modest price increase to its Peacock ad tier, while Paramount+ discontinued its ad-free option, directing subscribers toward a slightly pricier tier that includes additional content.
Over 25 percent of new Netflix signups choose the ad-supported tier in countries where it’s available.
Netflix launched its Netflix Basic ad-supported tier across eight countries in November 2022. As of May 2023, almost five million global monthly active users are using the platform’s ad-supported tier, with similar viewer engagement levels seen across ad-free accounts. Over 25 percent of new signups choose the ad-supported tier in countries where it’s available.
A study suggests that ad-supported streaming tiers are not cannibalizing subscription video-on-demand subs, as 85 percent of the Netflix ad-supported tier subscribers are new. With the removal of its basic ad-free plan in the US and UK, Netflix now only offers a $6.99 per month ad-supported tier, the $15.49 per month standard plan, and the $19.99 per month premium plan.
The allure of ad-supported tiers lies in their potential to be more financially lucrative for streaming companies. Executives from multiple major streaming platforms, including Disney, Netflix, and NBCUniversal, have revealed that the total revenue per user is often higher for ad-supported plans compared to their ad-free counterparts.
This is a pivotal point that has sparked the strategic shift towards ad-supported offerings. Recent data from Hub Research via The Hollywood Reporter supports this stance. According to the data, 60 percent of respondents would opt for an ad-supported platform if it meant saving $4 to $5 per month. That means consumers are recognizing the value exchange between advertising and high-quality content.
The move toward prioritizing ad-supported tiers aligns with the current advertising landscape’s trends. As traditional television advertising faces challenges, streaming platforms like Netflix have emerged as viable alternatives for advertisers looking to reach engaged audiences. Other streamers have reported significant interest from advertisers as their platforms become major players in advertising.
Executives from multiple major streaming platforms, including Disney, Netflix, and NBCUniversal, have revealed that the total revenue per user is often higher for ad-supported plans compared to their ad-free counterparts.
David Cohen, CEO of the Interactive Advertising Bureau, also emphasized the evolving dynamics. “As advertisers continue to look for high-quality content environments for their brands, they will inevitably be driven to these streaming services, which are aggregating larger and larger audiences with personalized content and ad experiences,” he explained.
While ad-supported tiers are currently attracting subscribers to sites like Netflix due to their cost-saving benefits, industry observers raise a pertinent concern. As prices continue to increase, there’s a question of how much people will tolerate if ad-supported tiers eventually reach the original prices of ad-free subscriptions when the various services were launched.