03 November 2022 |
Media and Advertising Industry
Netflix has recently launched its new ad-tiered subscription with the option being a potential game changer for the streaming giant, not only for its users but also for its revenue stream.
Earlier this year Netflix lost almost 1.2 million subscribers, however, has seemed to bounce back recently posting a growth of 2.4 million subscribers – higher than their initial estimate of 1 million. It has since been estimated it could gain an additional 4.5 million subscribers.
This is a need boost for Netflix and is thanks in part to its new ad-supported, lower-priced subscription tier – which allows subscribers to reduce their costs by 20-40% but in return will be served a few more interruptions while they stream.
As the streaming ecosystem becomes oversaturated with so many providers, some are expecting this push into advertising as a way for the giant to jumpstart another growth spurt by providing budget-conscious consumers an incentive to sign up. Netflix has previously said the launch of its new ad tier is expected to result in “meaningful incremental revenue”. However, this will be over a period of time. It will also help to make Netflix a more affordable solution for some users.
How do Netflix Ads affect consumers?
The lowest cost tier and ad-supported plan will cost $6.99 a month – but it has certain limitations to it such as users will only be able to use one screen at a time.
Users will also be served an average of five minutes of ads per hour that will play before and during streaming.
Those who sign up for this new tier will also have a lower video quality than Netflix’s Standard & Premium plans and users won’t be able to download shows and movies to their devices for offline viewing.
What will Netflix Ads deliver for Netflix?
While introducing a less expensive ad tier, Netflix runs the risk of some existing users downgrading to pay less each month. However, it’s hoping that its new stream of ad revenue will offset that loss. It will also help attract more users, potentially some in middle or low-income households who can’t afford to run multiple streaming subscriptions.
In its letter to shareholders, Netflix said its new ad stream is still in the “very early days” and also that building up its membership base and associated ad revenue will take some time.
But perhaps the most significant thing for Netflix will be how dependent they become on advertising in the future and if any competitors will follow suit.
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