The streaming giant’s co-CEO Ted Sarandos said during a teleconference this week that the new ad tier won’t have access to Netflix’s entire content library.
Sarandos spoke after the announcement that Netflix lost 970,000 subscribers in the second quarter of this year.
This is almost five times the amount lost in the first three months year and a sharp drop from 8.3 million new subscribers added in the fourth quarter of 2021.
Earlier this year, Netflix announced that it would bring ads to Netflix for the first time. The new ad-supported Netflix tier will be added to Netflix, likely by early 2023, and will be cheaper than the other existing tiers – Basic, Standard and Premium. Now, the streaming giant’s co-CEO has said the new tier won’t have access to Netflix’s entire content library.
Some shows produced by Netflix in collaboration with the BBC, such as The Serpent and Dracula (pictured), may be blocked in the new ad-supported tier.
WHAT WE KNOW ABOUT THE NEXT LEVEL OF NETFLIX AD-SUPPORTED
In April, Netflix revealed that it would be introducing ads for the first time.
The plan is to launch an ad-supported tier in early 2023, starting with “a few markets where ad spending is significant” – possibly the US and UK.
The tier will be cheaper than the cheapest tier in existence (Basic; £6.99 per month). Unlike other ad-supported streaming services, it won’t be free.
Netflix is working with Microsoft to create ads for the next level.
“Today, the vast majority of what people watch on Netflix we can include in an ad-supported tier,” Sarandos said.
“There are some things that aren’t there – which we’re discussing with the studios – but if we launch the product today, ad-level members will have a great experience.
“We’ll clean up some additional content, but certainly not all, but we don’t think it will be a significant hurdle for business.”
Content produced by the BBC may be excluded from this level because the BBC is not allowed to run ads supporting its programs due to a license fee.
John McVeigh, chief executive of Pact, the UK trade organization for manufacturers, said: time that some shows produced by Netflix in collaboration with the BBC, such as “The Serpent” and “Dracula”, may be blocked in a new ad-supported tier.
“If it’s an original BBC production, the BBC’s licensed funding can’t be backed by ads,” McVeigh said.
A spokesman for the BBC told MailOnline it was “too early” to comment or confirm.
The California-based streaming giant plans to launch a new ad-supported tier around early 2023, starting with “a few markets where ad spending is significant” — possibly the US and UK.
The new tier will be cheaper than the other existing tiers – Basic, Standard and Premium, but it will not be free, meaning customers will have to endure ads on top of paying a monthly subscription.
The hope is that the cheaper tier will help attract budget-conscious users and in turn help Netflix reverse its recent drop in subscribers.
Netflix added 8.3 million new subscribers in the fourth quarter of 2021. But for two consecutive quarters, he was losing followers, not gaining them.
Jesse Cohen, senior analyst at Investing.com, predicts the new ad-supported tier will be successful for Netflix and will attract younger users.
Q2 2022: Lost 970,000
Q1 2022: Lost 200,000
Q4 2021: 8.3 million received
Q3 2021: Acquired 4.4 million
Q2 2021: Acquired 1.5 million
“The launch of a cheaper, ad-supported version of the Netflix service is expected to be a much-needed growth catalyst that the streaming giant has been missing in recent years,” Cohen told MailOnline.
“We expect advertisers looking to reach younger viewers who have moved away from traditional television are likely to allocate the majority of their marketing budget to ads on Netflix going forward.”
Mike Prue, vice president and chief research officer of Forrester, said the new tier would “reduce costs for ad-tolerant users who are feeling price cuts.” attract new price-conscious users who didn’t want to pay a higher price.
“In addition to additional subscriptions, advertising will also provide an advantage to Netflix in the form of a new revenue stream from brands looking to reach the platform’s targeted audience,” Prue told MailOnline.
Netflix’s streaming competitor, Disney+, will also introduce an ad-supported subscription tier, likely later this year, although pricing has yet to be revealed.
Serpent is a British crime drama commissioned by the BBC and currently available to watch on Netflix.
Disney+ has a host of hugely popular and extensive content libraries, including Star Wars, Marvel and Disney movies, as well as The Simpsons and some exclusive series, including an eight-hour Beatles documentary.
Also during this week’s teleconference, Netflix CEO Reed Hastings said that traditional television “definitely” leave in five to ten years.
If Hastings’ prediction is correct, the BBC and ITV will exist as on-demand streaming platforms, not TV channels, as early as 2032.
“Looking ahead, streaming works everywhere,” Hastings said during the call. ‘Everyone pours in. This is definitely the end of linear TV in the next 5-10 years.”
Hastings also said on Tuesday that Netflix is ”very well set for next year” and that the underlying business drivers “continue to improve.”
Netflix expected to lose 2 million subscribers in the second quarter, so Tuesday’s results weren’t nearly as bad as they feared.
Hastings pointed out that the hit “Stranger Things” kept subscribers for a quarter.
The fourth season of the sci-fi show, produced exclusively for Netflix, began streaming at the end of May.
NETFLIX INTRODUCES ADVERTISING PLANS FOR THE FIRST TIME
In April 2022, Netflix CEO Reed Hastings revealed in an earnings call that the platform would introduce ads “in the next year or two”.
Netflix at the time had just reported that it lost 200,000 subscribers in the first three months of the year and expected to lose another 2 million in the second quarter.
The share price dropped significantly after the news, reducing the company’s market capitalization by about $70 billion.
Then in May, Netflix told its staff that it would roll out the ad earlier than expected by the end of the year. New York Times disclosed.
“Yes, it’s fast and ambitious and it will require some compromises,” Netflix said in a note to employees seen by The New York Times.
“Every major streaming company, with the exception of Apple, has or announced an ad-supported service. For good reason, people want options at a lower cost.”
Company executives noted that HBO and Hulu have been able to “support strong brands by offering ad-supported services.”
The news sparked a furious backlash from some users who threatened to cancel their subscription if they had to put up with the ads.
Twitter user @UCantCensorThis wrote: “Hi @netflix. I inform you that if I EVER see one ad interrupting what I’m watching on your service, I will cancel it faster than you can say “ad break”.
A survey of 2922 UK consumers using a mobile advertising platform. Walk Me found that more than a third (36%) of UK consumers would cancel their Netflix subscription if it were to be funded by ads.
However, 34% said they would continue to subscribe if it meant they could pay less for ads.
Paolo Pescatore, an analyst at PP Foresight, suggested that in order to attract users to sign up and keep them active, the new ad-supported plan should be “somewhere between 25% and 50% less than what they’re paying today.” .
Jem Lloyd-Williams, CEO of media agency Mindshare UK, said the trade-off between saving monthly money and watching ads might be appealing to some.
“As long as Netflix continues to invest in high-quality content, we believe this could be the right move at the right time for the streaming giant,” he said.