Netflix plans to launch an ad-supported version of its service in the United States and 11 other countries in November
Netflix plans to launch an ad-supported version of its service in the United States and 11 other countries in November
Netflix Inc. led the global entertainment industry nearly a dozen years ago with a streaming video service that rendered network television programming schedules and movie screening times all but irrelevant.
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Now, Netflix is gunning for the last reel of the pay TV business: an estimated $153 billion pool of global advertising revenue.
The company and some analysts detailed its new, affordable ad-supported service in a rosy quarterly report on Tuesday as a way to boost revenue as customers cut spending amid economic gloom. As TV viewership shrinks, it becomes less attractive to advertisers—and a bigger target to disrupt Netflix. Netflix co-chief executive Reed Hastings said he got the insight recently after hearing former Disney CEO Bob Iger describe traditional TV as moving toward a precipice.
“What I appreciated was just the impact on advertisers,” Hastings said during a video interview on Netflix’s third-quarter performance and outlook. Shares of the firm rose 14% after forecasting to pick up 4.5 million customers in the fourth quarter.
“They’re just being able to reach fewer people, and the decline in pay TV in the 18-to-49 demographic is even faster (the decline). So that’s what’s really fueling the cycle, that is.. . The Fall of Linear TV as an Advertising Vehicle.”
Netflix is planning to launch a Ad supported version of its service in the United States and 11 other countries in November. It will cost $6.99 a month in the United States, or 30% less than its basic ad-free tier, and will have about five minutes of ads per hour.
After all, Netflix, now operating in more than 190 countries globally, aims to provide “personalized” advertising as much as it recommends personalized viewing. Chief Financial Officer Spencer Newman said the new service will make money over time, but cautioned, “It’s going to be too small out of the gates.”
Some Wall Street analysts said the ad-supported version of the Netflix service could tempt some price-sensitive existing customers to switch to a less-expensive option.
This can work well to its advantage in times of economic instability.
Fred Boxa, associate director at consulting firm Arthur de Little, said, “While the strategic shift could undermine its current market — especially at the $9.99 tier — it’s a great move in this inflationary environment, where households are unable to access their streaming options.” Let’s continue to rationalize.”
If Netflix can pull it off, it may well make up for any shortfalls from the lower-priced streaming tier, from revenue from the ad-supported version of the service and the fees that come with having customers share their accounts. , said Haris Anwar, a senior analyst with Investing.com.
PP Foresight analyst Paolo Pescatore said Netflix’s advertising adoption would deal a serious blow to TV networks and broadcasters that rely on advertising as a major source of income.
“This could prove to be the final nail in the coffin for those players,” Pescatore said.