Netflix sizing up $7-$9 price for ad-supported tier – report

Netflix is exploring an ad-supported streaming tier that sells for $7 to $9 per month, a steep discount from its most-popular, ad-free tier that fetches $15.49 per month, according to Bloomberg (subscription required).

Figure 1: (Source: Netflix)

Netflix reportedly plans to launch its ad-based plan sometime in the fourth quarter of the year in at least a half dozen markets and start off with an ad load of about four minutes of commercials per hour (with no post-show ads). That will undercut the heavier ad load of traditional TV channels (typically up to 20 minutes per hour) and stay below the load of certain ad-based streaming services, such as Fox-owned Tubi, which currently delivers four to six minutes of ads per hour.

In addition to a light ad load, Netflix is seeking "smaller deals upfront so it doesn't overpromise and overwhelm viewers with the spots," Bloomberg added. But it noted that the overall plan is in flux and details could certainly change between now and the formal introduction of the ad-supported tier. Bloomberg reported earlier this month that code found inside Netflix's iPhone app indicates that the coming ad-supported tier won't allow content downloads – something Netflix allows today on its current set of ad-free subscription tiers.

Netflix's Basic tier (standard definition with one stream) sells for 9.99 per month. Standard, its most popular option, goes for $15.49 per month with support for HD and two simultaneous streams. Netflix's Premium tier (support for titles in 4K/HDR and four simultaneous streams) costs $19.99 per month.

Netflix is set to join its streaming peers in launching an ad-supported option. HBO Max, Paramount+, Disney+, NBCU's Peacock and Hulu are among the major, general entertainment direct-to-consumer streaming services that now offer or will soon offer ad-supported tiers. Disney+'s coming ad-supported option, branded as Disney+ Basic, is set to launch December 9 for $7.99 per month and deliver about four minutes of ads per hour (its current ad-free tier costs $7.99 per month, but is set to rise to $10.99 per month).

One big challenge ahead for Netflix is to introduce an ad-supported tier that can help it expand its subscriber base without cannibalizing its base of customers who currently are paying for the ad-free offering. Netflix ended Q2 2022 with 220.67 million streaming subs worldwide.

Billions at stake

Netflix has not shared a forecast on how much revenue it expects to generate from an ad-supported option. Ampere Analytics predicts that Netflix will pull in $5.5 billion in global annual advertising income in five years, with $1.7 billion generated in the US alone.

Although the final form of Netflix's initial ad-supported tier could be tweaked and changed in the weeks and months leading up to the launch, the company has shared a few details about that strategy.

Last month, Netflix predicted that the new option will likely launch in early 2023 (a bit later than what Bloomberg is saying), and that the ad-supported option won't feature the full Netflix library.

But Netflix, which has tapped Microsoft as its primary ad-tech partner, believes it will still have enough content cleared to satiate a portion of the audience that will gravitate to the ad-supported option.

"The vast majority of what people watch on Netflix, we can include in the ad-supported tier today," Ted Sarandos, Netflix's co-CEO, said on the company's Q2 2022 earnings call in July. "There are some things that don't that we're in conversation with the studios on. But if we launch the product today, the members in the ad [tier] would have a great experience. And we will clear some additional content, but certainly not all of it … So, we're looking, but I don't think it's a material holdback to the business."

Netflix has also suggested that it will offer multiple ad-free streaming tiers, rather than just one.

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— Jeff Baumgartner, Senior Editor, Light Reading