Although Netflix had long said its service would not include ads, it recently revealed last month that it will be rolling out a cheaper, ad-supported plan for users.
Soon enough, Netflix users will start spotting ads on the big screen. As per a new report, the streaming giant is likely to fast-forward its plans to introduce advertisements by the end of the year. “Netflix has told employees that the ads may debut by the end of 2022,” sources quoted in The New York Times report on May 10th, Tuesday said.
Netflix has observed a major change in the streaming market, its recent business results have forced the company to change its strategy. The company’s chief had talked about bringing ads for better revenue prospects, while also changing the way people share their Netflix accounts with others.
The same report suggests that Netflix is likely to bring ads to your screens in the last three months of 2022.
Netflix has mostly customized the plans it offers in different markets. However, in the West, it continues to charge a higher fee. Whereas in emerging markets, for example, India, where the growth potential, as well as the customer demographics, are different, Netflix’s streaming plans start from as low as Rs 149 per month.
Netflix has to make differential offerings to attract audiences, however, ads are a grey area. Though the ads will help the company earn some additional revenue, it could, however, have a direct impact on retaining the existing users.
Netflix and the problems of Password sharing
In addition to that, the streaming company will have new measures to crack down on password sharing, as it is something that has been bothering the streaming giant for years on years.
People have used the double screen access benefit to share their account details with other people in their family and friend circles. Netflix wishes to start charging the additional users a small access fee, on which details should be released in the coming months.
Netflix recently commented that more than 222 million households/users are paid, subscribers. However, the company also claimed that more than 100 million households are watching Netflix using someone else’s account, without having to pay for the access.
On the earnings call, chief operating officer Greg Peters said that though the company is “not trying to shut down the sharing entirely,” it is “going to ask the users to pay a bit more to be able to share.” Netflix has begun testing an extra fee for account sharers in Peru, Chile as well as Costa Rica in March.
The how, when, and why of the addition of ADs on Netflix
Netflix co-CEO Reed Hastings shocked the streaming world in April when he announced the company’s prospective plans to launch an ad-supported tier. Hastings had acknowledged during the company’s Q1 2022 earnings call that he had vehemently opposed the idea of additional ads on Netflix in the past. However, the company’s recent struggles seem to have been severe enough to bring about this change.
Though the news is known, there is a lot that is still unknown or unclear regarding Netflix’s embrace of advertising.
Netflix will not be forcing anyone to watch ads. Instead, the company will likely add a new, cheaper service plan that will include advertising, however, it will also keep ad-free plans for the existing subscribers.
“If you want the ad-free option, you will be able to have that as a subscriber,” said Hastings. “And if you would rather pay a lower price are ad-tolerant, you are going to be catered to, as well.”
This dual model has proven to be successful for Hulu, which had begun as an ad-supported service before it eventually introduced an ad-free tier in 2015.
Hastings called out Hulu as proof that ads are working for video subscription services. Hulu ended 2021 with 40.9 million paying subscribers, the number rose from 35.4 million a year ago.
Hulu’s average monthly revenue per subscriber was $12.96. This is around the same as the price of the monthly ad-free tier Hulu provides. That’s even though Hulu’s ad-supported tier is just $6.99 a month, often gets discounted to as little as $2.99, while also being sold in a bunch of cheaper bundle configurations.
Or simply said: Hulu nearly makes as much money with an ad-supported subscriber as it does with the higher-priced ad-free tiers.
Why is there a need for ADs, for a streaming giant like Netflix?
The introduction of Ads is really about international growth. Netflix has seemingly hit a ceiling in North America, where it has lost 640,000 subscribers in Q1. However, a more worrisome aspect of the earnings report was a drop in subscribers in every global market. Except for Asia, where Netflix has signed up a modest one million new customers.
International markets were supposed to be the growth engine for Netflix going forward, however, the company has been struggling to get a foothold in many countries. As it is often unable to match the lower price tag of local competitors or Amazon’s heavily discounted Prime Video service.
The new Ad-supported plans could help Netflix catch up abroad by signing new subscribers for a low monthly price, then reaping the rewards while those international ad markets mature.
A focus on international growth is also a factor in Netflix’s approach to video ads. The company is not looking to build local ad sales teams in every one of its markets. Instead, they would likely rely on third parties to facilitate ad sales as well as targeting.
“We can be a straight publisher … and [get] monetized … by a range of different companies who offer the service,” according to Hastings.
With its stock nosediving by over 50 percent in the last month, coupled with the loss of subscribers (largely due to shutting down its service in Russia), the company is hoping that the ad-supported tier along with the extra charges for password sharing will help increase revenue.
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