Of course, Netflix didn’t make this change necessarily out of the kindness of its heart. In case you’re wondering why a company would add this plan, the answer is pretty simple…cold hard cash.
There is a huge opportunity for revenue for Netflix through its ad-supported tier. A Wells Fargo analyst, Steven Cahall, suggested that $8.7 billion could be up for grabs for Netflix from the US TV market, as originally reported byThe Hollywood Reporter.
Currently, the cost-per-thousand (CPM) for Netflix is believed to be around $16, as opposed to the $12 for the US TV ad markets. For Netflix’s CPM to lower and become more favorable, it needs as many users on the platform as it can get.
This is a tall order, especially with how much competition there is in the streaming market today, but Netflix has brand recognition working in its favor.
It’s all well and good to have an opportunity, but is Netflix’s plan working?
Arguably, it is.
As reported byThe Hollywood Reporter, Netflix’s co-CEO Greg Peters says that the platform has already seen five million monthly active users for its ad-supported plan, which is a huge landmark, especially compared to the previously rumored one million monthly users. The latest data also seems to suggest that in countries where the ad-supported tier is offered, 25% of new signups choose it.
The same Hollywood Reporter article cited 34 as the average age of Netflix active users. This may not come as a surprise, given that this age group would have been used to watching ads on cable TV, and it makes sense that they’d be more willing to accept it in streaming.
With the cost-of-living crisis around the world, many users would have been re-evaluatingwhether Netflix is worth the money. With the amount of opportunity for Netflix with this new model, you can expect the company to aggressively push the tier through 2023 and beyond.
Do you think ad-supported tiers have a place on Netflix and other streaming services?
It’s a controversial topic and one you likely have an opinion on.
On one hand, ad-supported tiers offer cheaper pricing to customers, lowering the barrier to entry that higher-priced streaming tiers can place on people.
People are always looking for ways to save money on their entertainment, especially with there being so many streaming services now. The average person keeps two or three streaming services at any time, so reducing the amount spent for each one is desirable.
On the other hand, the whole point of streaming services was that you could binge-watch shows without interruptions. It was seen as a saving grace after the era of cable TV, where you’re inundated with ads. This move by streaming services to include ads in their plans seems counter-intuitive to the whole initial draw of them.
Whether ad-supported tiers are a good idea or not, Netflix is clearly dead-set on pursuing them. It wouldn’t be surprising if the more premium tiers also included ads.
While Netflix’s ad-supported tier seems to be succeeding as intended, there is still a long way to go. While streaming services were an easy way to get rid of ads, it seems users don’t mind watching a few ads every hour to save a few bucks. Netflix knows this, and it’s already taking advantage of it.
While no one knows how successful ad-supported plans will become, it’s clear that Netflix, and other popular streaming platforms, are getting ready to make a lot of money with it.
