After years of refusing to allow adverts on its streaming network, Netflix is now allowing them.
Ted Sarandos, co-CEO of Netflix, revealed on Thursday that the business would begin testing an ad-supported, lower-cost subscription tier. Sarandos stated at the Cannes Lions international advertising festival that the streaming firm is in talks with a number of possible partners to assist ease its entry into the ad world. Comcast, NBCUniversal, and Google are allegedly among the partners.
Sarandos’ confirmation comes at a difficult time for Netflix. As rivalry among entertainment services heats up, the streaming behemoth lost customers for the first time in a decade, drew criticism for tightening down on password sharing, and lay off more than 150 employees (or about 1.5 percent of its global workforce).
“We’ve left a big customer segment off the table, which is people who say, ‘Hey, Netflix is too expensive for me and I don’t mind advertising,’” Sarandos stated. “We’re adding an ad-tier. We’re not adding ads to Netflix as you know it today.”
Netflix co-CEO Reed Hastings hinted at the advertising strategy during a first-quarter earnings call in April, saying that commercials could be coming in the next year or two. “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,” he stated. “And allowing consumers who like to have a lower price, and are advertising tolerant, to get what they want makes a lot of sense.”
The New York Times then reported in May that Netflix had told its staff that an ad-based plan could debut by the end of the year, which was earlier than previously anticipated.
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Netflix lost 200,000 customers in the first three months of 2022, and in an April shareholder letter, the company predicted even more losses. The company’s stock price has dropped more than 70% this year (compared to a 21% drop in the S&P 500), wiping out about $70 billion of its market capitalization and leading shareholders to file a lawsuit arguing that Netflix misled investors about decreasing subscriber growth.
Netflix is now hoping to increase revenue by adopting advertising. And it’s not the only one. Hulu and HBO Max currently offer ad-supported plans that are less expensive than their commercial-free offerings, while Disney+ stated in March that it would launch an ad-supported membership tier in late 2022.
With Netflix’s current monthly subscription model, customers in the United States can use their account on one, two, or four screens at the same time, with costs corresponding to the number of screens available—ranging from $9.99 to $19.99. The new ad-supported tier will provide a lower-cost option for subscribers willing to endure advertisements in exchange for paying less.