Netflix is aiming to appeal to cash-strapped customers with a cheaper, ad-supported plan. But will it be worth the savings?
Netflix is making the biggest change to its pricing in years, with the introduction of an ad-supported lower pricing model.
This follows other streaming services which have, or will introduce, a similar model, with Hulu having offered an ad-supported plan since its inception in 2010 and Disney+ announcing its introduction later this year.
But how will Netflix’s new model work, and when will it come to Ireland?
Netflix’s ad-supported plan, called Basic with Ads, will be 20-40% cheaper than its current starting price, according to Netflix. However, it will follow the current Basic plan in its limitations.
- Users will only be able to stream in 720p, as opposed to the higher plans, which support 1080p and even 4K on the most expensive plan.
- It will also disallow users from downloading shows and movies, mainly due to the difficulty in properly utilising advertisements on downloaded material.
- Users will also only be able to stream on one screen at a time, compared to two on the Standard plan and four on the Ultimate plan. While most of the catalogue will be available, some 5-10% will be unavailable due to licensing issues.
Netflix says that its new model will see around five minutes of ads per hour watched, with ads coming before and during programming.
Users on the plan are asked to provide their age and gender, so that ads are tailored demographically, and to ensure that sensitive ads aren’t shown to under 18s. This also helps advertisers to choose what kind of content they want their ads to be shown to.
The ads will be 15-30 seconds long and unskippable - but the company plans to introduce frequency caps to ensure you aren’t watching the same ad over and over again.
Ads that promote alcohol, gambling or politics will not be allowed, nor will there be any ads on the Netflix Kids section.
The service will not be launching in Ireland as of yet – and there is no timeframe for any launch, according to Netflix Ireland’s PR representative.
For now the plan will launch in:
- Canada and Mexico on November 1st
- Australia, Brazil, France, Germany, Italy, Japan, Korea, the UK, and the US on November 3rd
- Spain slightly later on November 10th
These markets account for 75% of global market advertising spend, at over $140 billion, so it’s clear that Netflix is testing out the viability of the product in its largest markets before rolling it out to the smaller ones.
The plans are priced slightly differently for different markets, with Germany being €1 cheaper at €4.99 compared to France’s €5.99. The UK comes in at £4.99, but we can expect Ireland to be slightly higher, owing to the fact that we have one of the world’s most expensive Netflix pricing already.
Why the change?
Netflix has had a bit of a topsy-turvy year, with fluctuating subscriber numbers and greater competition meaning the streaming giant is coming up with new ways to add more customers and revenue.
Although they added over 2.4 million subscribers, mostly in the Asian market, in their most recent quarterly release, their share price is still 56% lower than this time last year.
Netflix saw two separate periods of net subscriber losses in 2022 before the most recent growth, with this a stark contrast to a decade of continuous growth and the pandemic period, which saw the company earn over 36 million subscribers in 2020.
In March of this year and 2021, price increases hit Irish customers, with the Premium plan now costing €20.99, up from €17.99. The basic plan also saw its first increase in a decade, rising €1 to €8.99.
The ad-funded package is aimed at those feeling the pinch with the cost-of-living crisis, and also comes as Disney announced their intentions for a similar ad-supported model that is being launched in the US in December, and internationally sometime in the new year.
Netflix is also bringing in measures to stamp out password sharing, which includes adding in an option to pay for extra, non-family member users and for users to port their profiles into new, paying accounts.
Will it work?
The big question for Netflix is whether this new move will make much of an impact in substantially boosting both subscriber numbers and revenue. The two go hand-in-hand in regards to advertising, with the more users on its ad-supported package, the more the company will earn. And there is a lot of choice for other streaming services out there.
The firm can be boosted by a 2019 estimate by Hulu in which they said that 70% of its 80 million viewers (at the time) used the ad-supported option. And recent moves by other platforms to move in the same direction shows that these new-age streamers are looking to edge out traditional TV stations’ control over media related advertising spend.
The question is whether enough new or existing customers will make the jump over to the new model to justify its existence. While some may be tempted by the move, others will likely not want to stomach ads for the sake of a few euro a month.
The catch for Netflix is that any customer who joins the plan as a new customer is a plus, but any existing customer who ‘trades down’ to the cheaper option could result in a loss of revenue, as advertising is likely to take a while to catch up.
So it’s entirely possible that we’ll be seeing news of new subscribers flocking to Netflix (it estimates an increase of 4.5 million in the next quarter) but it may take a run of quarters before we start seeing Netflix’s revenue, and share price, increase.
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