Netflix let loose with details about timing and pricing for its initial stab at an ad-supported tier, announcing Thursday that the new offering will become available next month in 12 countries.

The new offering, called Basic with Ads, will be rolled out across the markets in a phased approach, starting in Canada and Mexico on November 1, with additional market launches set for the mornings of November 3 and November 10.

Figure 1: (Source: Netflix press briefing presentation)

Basic with Ads will largely align with the features of Netflix's ad-free Basic tier, allowing subs to access one stream at a time. Netflix is also boosting the quality of both basic-level tiers to 720p HD, improved from the standard-def (480p) quality used for Netflix's current ad-free Basic tier.

But there are some differences. Basic with Ads, a service created in about six months, won't support downloads out of the chute due in part to some "technical complexities" pertaining to how ads would show in downloaded files, Greg Peters, Netflix's COO and chief product officer, explained in a press briefing.

Figure 2: (Source: Netflix press briefing presentation)

Additionally, Netflix Basic with Ads will not provide access to the full catalog available in the service's ad-free tiers because of licensing restrictions on certain TV shows and movies. That catalog limitation varies by market, but it's generally in the 5% to 10% range, Peters said. Netflix is working to reduce limitations further as it irons out new licensing deals for the new ad-supported offering.

At launch, ad-supported titles will deliver 15-second or 30-second ads at the start or middle of many titles (20 seconds in Spain), but new movie releases will be limited to short pre-roll ads at the start. Peters said Netflix expects to support a "light" ad load – four to five minutes per hour, paired with a tight cap on ad frequency.

Netflix has signed on "hundreds of advertisers worldwide" and "nearly sold out all of our inventory," Jeremi Gorman, Netflix's president of worldwide advertising, said.

Pricing and features

Pricing also varies by market. In the US, Netflix Basic with Ads will sell for $6.99 per month, $3 less than the ad-free Basic tier. Netflix will continue to sell its other ad-free tiers: Standard and Premium. Here's a look at how they'll stack up in the US:

Figure 3: (Source: Netflix press briefing presentation)

"We believe that with this launch we'll be able to provide a plan and a price for every Netflix fan," Peters said.

Netflix is launching the new ad-supported tier to help the company rekindle subscriber growth that has begun to slow down after big spikes during the early stages of the pandemic.

Netflix, which will report Q3 2022 results next week, has yet to announce any projections for the new ad-supported offering. But Peters said the company expects it to provide an incremental revenue and profit stream.

Total revenues similar between basic plans

Netflix will use customer data (including date of birth and gender info) to target ads by country, gender and genre, with some targeting focused on its top ten most popular shows (demographic targeting won't be implemented at launch). But Gorman stressed that such data will only be used to support Netflix's ad business and won't be used to build profiles or to support ad-targeting elsewhere.

Netflix has teamed with DoubleVerify and Integral Ad Science to verify ad impressions and validate traffic by Q1 2023. Nielsen will include Netflix's ad-supported service in its US digital ad ratings starting sometime next year.

When asked if Netflix is concerned about existing subs downgrading to the ad-supported tiers, Peters said the ad offering was modeled under a price point whereby total revenues – subscriptions plus ad monetization – are "neutral to positive" when laid next to the comparable subscription-only plan.

"We're not trying to steer people to one plan or the other. We really want to take a pro consumer approach and let them land on the right plan for them," Peters said, noting that Netflix expects some existing subs to go with the ad-supported tier while also drawing in new customers as well as those that are returning to the service. "We think the revenue plan will be fine as a result."

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— Jeff Baumgartner, Senior Editor, Light Reading