After years of gradually raising subscription rates, a cheaper solution for Netflix may be on the horizon.
But it may cost you in some other ways such as commercials and restrictions on password sharing.
Netflix’s top executives answered questions about the future of the business during an earnings call on Tuesday, April 19. And after losing 200,000 subscribers during the first quarter of 2022, much of the discussion was about the sustainability of the company’s current model and changes that could be coming down the line.
I listened to the discussion with the Netflix leadership group and came away with some interesting details that could impact your streaming budget in the near future. Let’s walk through them.
Netflix Heard You: It’s Working on a Cheaper, Ad-Supported Subscription
After years of insisting that Netflix would remain a premium, ad-free streaming experience, the company’s leadership group seemed humbled by the first net loss of subscribers in an earnings quarter since 2011.
Perhaps as a result, they revealed that the company is working on an ad-supported subscription to compete with low-cost streaming providers.
“Those who follow Netflix know that I’ve been against the complexity of advertising, and I’m a big fan of the simplicity of [ad-free] subscription,” Netflix CEO Reed Hastings said during the call. “But as much I’m a fan of that, I’m a bigger fan of consumer choice.
“Allowing consumers who want a lower price and are advertising-tolerant to get what they want makes a lot of sense. So that’s something that we’re looking at now and trying to figure out over the next year or two. Think of us as quite open to offering even lower prices with advertising as a consumer choice.”
Value streaming customers everywhere rejoice!
So Netflix has changed a years-long stance on refusing advertisements on their platform. Why? And what would an ad-supported subscription cost?
Why Is Netflix Considering This Now?
Netflix has long insisted that advertisements in its content complicated things. Executives have repeatedly said that a premium, ad-free experience based on a higher subscription rate gives the users a better viewing experience and the company the revenue to generate original content that keeps users happy.
In my view, there are two major factors pushing Netflix into the ad-supported game whether it wants to be there or not:
- The customers. While Netflix clearly is a leader in original and premium content in the streaming TV space, customers could be pushing back against the monthly pricing. Subscription costs now top $20 per month after taxes for customers who pay for the top-end service, and that’s enough to cause some people to think twice about paying for it. When subscriber numbers miss expectations, the stockholders aren’t happy. And when the stockholders aren’t happy, the company’s leadership is pushed into action.
- The competition. Major competitors including HBO Max, Hulu, Paramount+ and Peacock all have ad-supported subscription options. Disney+ has announced that it soon will be adding one as well. There clearly is a large enough group of consumers who are willing to sit through commercials to get a lower price, and many of Netflix’s top competitors are tapping into that revenue source. Stalling any longer on this may leave Netflix behind.
Hastings also said that the company was confident in moving forward with this strategy now that the technology is in place for a third party to properly handle advertisement placement and partnerships, which would allow Netflix to remain focused primarily on being a content publisher.
“It’s pretty clear that it’s working for Hulu, Disney is doing it, HBO did it,” Hastings said. “I don’t think we have a lot of doubt that it works. All of those companies have figured it out. I’m sure we’ll just get in there and figure it out.”
What Will Pricing Look Like for Ad-Supported Netflix?
Since this is still in the early developmental stage, Netflix has not tipped its hand in regards to its pricing strategy for ad-supported content. Truth be told, company leaders may not yet know the right model.
So we’re left to speculate for ourselves in the meantime.
First, let’s look at the current pricing structure for Netflix in 2022.
Customers already can get Netflix for as low as $10 per month, but they’re making some pretty big concessions in user experience (HD availability, concurrent streams) to get that bargain. To get the full experience, you have to pay $20 now.
Next, let’s look at pricing strategies already in place for ad-free versus ad-supported subscription plans for streaming services that already have them.
|Streaming Service||Ad-Supported Monthly Price||Ad-Free Monthly Price|
|Disney+||To Be Determined||$7.99|
The discount offered on services that are already cheaper than Netflix varies from $2 to $6 per month.
If Netflix placed itself at the “high” side of that discount range for all of its subscription levels, we might see a limited subscription approach the $5 per month mark.
However, I believe it’s much more likely that we’d see Netflix try to push ad-supported users to that $10 per month they’re already charging “Basic” subscribers by offering more of the perks from “Standard” and “Premium” in exchange for commercials.
Netflix Is Coming for Password Sharers
If you’ve been sharing a Netflix password with friends or family, that free ride may soon be coming to an end.
I recently discussed in a previous article Netflix’s plan to roll out a new program in select countries that targets customers who share Netflix accounts between multiple households.
During the earnings call, the executive team members more or less confirmed that they plan to implement this strategy in more markets soon with the idea that it could eventually be a worldwide change by 2023.
Netflix, which generally accepted password sharing as a part of its market penetration strategy in recent years, revealed that there are now as many as 100 million password sharers worldwide on the platform. The United States and Canada could be responsible for up to 30 million of those.
Netflix believes that level of sharing may now be impacting its ability to grow subscriber numbers effectively.
The idea of this new policy is not to make sharers pay full price for another account but to have them pay a smaller fee for being an “add-on” to a full-paying customer’s account.
The test price in Chile equates to $2.99 per month per person, which seems reasonable.
Clark Howard Is a Big Fan of Ad-Supported Streaming
Money expert Clark Howard has expressed his enthusiasm for the market’s shift to free and discount ad-supported streaming. He sees these discounted options as a great way to trim your streaming bill.
Clark recently implemented this strategy himself by switching from ad-free Hulu to the ad-supported version, which saves his family $6 per month. That’s $72 back in his pocket annually.
“I want you to think about looking at these tiers with the ads,” Clark says. “They can save you money. Multiply that monthly savings times 12 and see how much it’d save you over the course of the year.”
You can read more about Clark’s money-saving changes to his streaming habits here.
Are you making any changes to your Netflix or other streaming accounts? Share your opinion in our Clark.com community!
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