Three days ago, Netflix officially launched its ‘Basic with Ads’ cheaper subscription package as previously announced by the firm. This new tier will allow the company to attract budget-conscious users and will also effectively create a new revenue source for the Los Gatos-based video streaming platform.
The new ad-supported subscription has been initially rolled out in Canada, Mexico, the United States, the United Kingdom, Brazil, and another 9 countries. Later in the month, it will also be available in Spain. The monthly cost of Basic with Ads will be $6.99.
The Basic with Ads package allows users to watch Netflix one device at a time and will support a 720p resolution. Subscribers will also have access to the platform’s popular mobile games and to a limited selection of its content library.
According to Netflix’s estimates, users will have to watch approximately 4 minutes of adverts for every hour of content they watch on the platform. Each ad will reportedly last between 15 to 30 minutes.
The publisher-facing ad platform will be managed by a sales team from Microsoft (MSFT). The company founded by Bill Gates will be responsible for administering the system through which publishers will be able to select the audience, budget, and other important details of the campaigns they wish to roll out.
High Cost of Signing Up for Multiple Streaming Platforms Remains an Obstacle to Cord-Cutting
Many other streaming platforms have already rolled out ad-supported tiers as a way to keep growing their user base.
For consumers, one of the obstacles to switching from a legacy cable provided to a streaming platform is that they can only access the content library of a single provider. Meanwhile, if they wish to watch content from multiple vendors, they must sign-up for all of their services.
The combined cost of doing this typically exceeds the monthly subscription of traditional cable service.
For example, the cost of signing up for the seven most popular streaming platforms including Netflix, Amazon Prime, HBO Max, and Disney+ amounts to $120.93. In the US, cable companies have plans ranging from $40 (basic) to more than $150 per month (premium).
Netflix Reports Surprising Jump in Paid Subscriptions in Q3 2022
During the third quarter of 2022, Netflix (NFLX) reported a surprising jump in its number of paid memberships as it added 2.41 million new users to the platform. In the previous two quarters, the company reported negative user growth. This caused a sharp drop in the value of its common shares.
The company cited the success and appeal of some of its recent releases as the reason why it managed to turn the tables during this quarter.
“After a challenging first half, we believe we’re on a path to reaccelerate growth. The key is pleasing members. It’s why we’ve always focused on winning the competition for viewing every day. When our series and movies excite our members, they tell their friends, and then more people watch, join and stay with us”, the company asserted.
Meanwhile, in regards to the contribution that the ad-supported subscription will have to the firm’s revenues, Netflix believes that it will be positive-to-neutral, meaning that they don’t necessarily expect a big boost to its top-line performance in the near term as a result of the launch of this new tier.
“With regard to ads, we modeled out essentially what we think the expected revenue is on a variety of different countries that we’re launching in to make sure that in a combination of the subscription price that we’re charging for Basic with Ads plus that anticipated monetization, we’d be roughly, call it, unit economics-wise, revenue positive to neutral”, commented Gregory K. Peters, Netflix’s Chief Product Officer, during a conference call with analysts.
Peters also emphasized that Netflix does not believe that a significant number of users will downgrade their subscriptions as premium packages are the only ones that support 4K resolution.
“It may be relevant to note that we don’t see a lot of members switching plans. So oftentimes, when they come in and they select the plan for a given feature, let’s say, that’s the 4K resolution, we see that to be a pretty sticky choice”, the head of product commented.
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