Netflix With Ads Is Coming, Here’s When

By Charlene Badasie | Published

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Following a dismal second-quarter earnings report, Netflix hopes that its ad-supported tier will bring some financial relief. Expected to launch early next year in partnership with Microsoft, the streamer emphasizes that its current plans will remain free of commercials. Company executives remain optimistic about the new Netflix ads venture noting that advertising can enable substantial incremental membership through lower prices and profit growth through ad revenues.

The exact pricing for the Netflix ads adoption is yet to be announced. But the new version, which is said to complement existing plans, is already being tested in Latin America and other markets. “Our global ARM has grown at a 5% compound annual rate from 2013 to 2021,” the company said in a letter via ComicBook. “So it makes sense now to give consumers a choice for a lower priced option with advertisements if they desire it.” Unfortunately, the new offering won’t include all the content currently available on the streaming service.

The disappointing Netflix ads revelation was made during the company’s latest earnings interview, where Netflix co-CEO Ted Sarandos tried to soften the blow. He said most of what people watch on the platform can be included in the ad-supported tier. But there are some shows that won’t make the cut. This is currently being discussed with the various studios. However, Sarandos did assure viewers that if the product was launched today, subscribers to the commercial-filled version would still have a great experience. “We will clear some additional content, but certainly not all of it, but we don’t think it’s a material holdback to the business,” he said.

Netflix co-CEOs Reed Hastings first signaled the ad tier during last quarter’s earnings announcement, without much conviction. But the idea still surprised the broader industry and Wall Street since the platform always eschewed commercials by strategically leading streaming trends – not following them. Now that so many of the company’s competitors boast strong ad tiers, the idea started to take shape at Netflix too. The move also resulted in a share price improvement during this week’s trading. “Over time, we hope to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers,” the company said via Deadline.

During its second-quarter earnings report, Netflix attributed slowing subscriber and revenue growth to several external factors. This included connected television adoption, account sharing, competition, sluggish economic growth, and the impact of the Russia-Ukraine war. While the streamer lost 1m subscribers between April and July, with the U.S and Canada home to the highest number of cancellations, the company remains hopeful that the Netflix ads tier will solve its financial woes.

The company says streaming is still winning over linear, with Netflix titles remaining very popular around the world. While the company works to accelerate its revenue growth, through improvements to the service and more effective monetization of multi-household account sharing, the platform will be holding its operating margin at around 20%. As the streamer’s bosses try to convince viewers that its ad-supported tier is the best thing for everyone, fans will have to wait and see if they can still watch popular shows like Stranger Things and Bridgerton on the cheaper plan.