Netflix Unveils Details for Launch of Ad-Supported Subscriptions

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Streaming TV fans will soon be able to pay for an ad-supported version of Netflix.

While we’ve known for a little while that a cheaper Netflix subscription might be on the horizon, the company unveiled some new details on the progress of its development of an ad-supported subscription tier in a recent letter to shareholders.

In this article, we’ll look at the latest on the video streaming giant’s looming strategic pivot to advertisements as well some news about the future of password sharing on the platform.


Netflix Is Now Targeting 2023 for Ad-Supported Streaming

Perhaps the biggest news for streamers to come from Netflix’s second quarter earnings announcement is that there’s a timeline and some additional details regarding the launch of an ad-supported tier of Netflix.

Here’s a quick rundown of what we do and don’t know after the latest announcement.

  • Netflix announced the ad-supported tier will launch “around the early part of 2023.” Major competitor Disney+ has also expressed a desire to launch an ad-supported tier sometime in the latter part of 2022, so it’s conceivable the launch of these two options will be within weeks or months of each other.
  • The ad-supported tier will be in addition to Netflix’s existing ad-free plans. It will not replace any of them (as had been rumored in some corners of the internet). The basic ad-free package, which leaves off many desired features such as HD and concurrent streams, is priced at $9.99 per month.
  • Netflix still has not released a pricing model for the ad-supported subscription. Your guess is as good as ours in terms what Netflix will ultimately decide here. My opinion is that HBO Max‘s model ($10 for ad-supported, $15 for ad-free) may be a good measuring stick for what to expect. We’ll talk more about this later in the article.
  • Microsoft is on board. The tech giant has been named the “technology and sales partner” for implementing the advertisements in the Netflix ecosystem.
  • This may be available only in select markets early on. Netflix has used this strategy for many of its new features. It likes to test things in a few markets, see how things work out and then develop a plan for global implementation. It is unclear where the United States is on the priority list for this feature.

Netflix’s Strategy for Rolling Out the New Ad-Supported Tier

We don’t have all the details yet, but in its note to shareholders, Netflix did offer this hint about what to expect when the new program launches in early 2023:

“We’ll likely start in a handful of markets where advertising spend is significant. Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So, our advertising business in a few years will likely look quite different than what it looks like on day one. Over time, our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners. While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues).”


What Will Pricing Look Like for Ad-Supported Netflix?

As mentioned above, Netflix still has not tipped its hand in regard 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 in the meantime.

First, let’s look at the current pricing structure for Netflix in 2022.

2022 Netflix pricing chart
Netflix.com

You already can get Netflix for as low as $10 per month, but you’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 a month now.

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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 ServiceAd-Supported Monthly PriceAd-Free Monthly Price
Disney+To Be Determined$7.99
Peacock$4.99$9.99
Discovery+$4.99$6.99
Paramount+$4.99$9.99
Hulu$6.99$12.99
HBO Max$9.99$14.99

The discount offered on services that are already cheaper than Netflix varies from $2 to $6 per month.

Could something like “Ad-Supported Premium” be worth $14 per month to a consumer instead of paying $20 to be ad-free with the normal Premium subscription? That’s likely the question Netflix execs are asking themselves right now.


Netflix May Also Make Permanent Adjustments to Password Sharing Policies

Another topic broached in the shareholders letter was password sharing. Netflix says it hopes to have a plan in place to start charging for that in 2023.

As we’ve previously covered, Netflix has been testing policies for charging existing members a nominal amount of money to add out-of-household users to their accounts in a few countries including Costa Rica and Chile.

As part of that, Netflix is also seeking to make it easier for people who are sharing passwords to export their user profiles to their own accounts so that they don’t lose their favorites or queued shows.

Netflix offered this update to shareholders in the second-quarter earnings letter in July:

“We’re in the early stages of working to monetize the 100m+ households that are currently enjoying, but not directly paying for, Netflix. We know this will be a change for our members. As such, we have launched two different approaches in Latin America to learn more. Our goal is to find an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023. We’re encouraged by our early learnings and ability to convert consumers to paid sharing in Latin America.”


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