Netflix with ads off to a slow start, but with a silver lining – study

News Analysis Jeff Baumgartner, Senior Editor, Light Reading 12/20/2022

Netflix hopes to spur subscriber growth and create a new dual-revenue revenue model with an ad-supported plan that launched last month in a dozen countries. However, Netflix's new "Basic with Ads" plan, which fetches $6.99 per month, is not off to a fast start, according to a new study from Antenna.

Just 9% of Netflix sign-ups in the US in November were for its new ad-supported plan, a "modest start" for a tier that is currently the least popular of Netflix's plan options, Antenna co-founder and CEO Jonathan Carson noted in this blog post. Antenna found that Netflix's ad-free "Basic" tier remained the most popular, well ahead of the service's other ad-free Standard and Premium plans. The "Basic" ad-free plan costs $9.99 per month.

Click here for a larger version of this image.
(Source: Antenna)

Antenna bases its studies on data from a range of data collection partners that contribute millions of permission-based, consumer opt-in, raw transaction records, derived from sources such as online purchase receipts, credit, debit and banking data and bill-scrape data. Antenna then "cleans and models" the raw data.

Netflix, however, questioned the accuracy of Antenna's data, according to The Wall Street Journal. Netflix didn't supply any specific data to counter Antenna's findings, but a company official stressed to the pub that "[it's] still very early days for our ad-supported tier and we're pleased with its launch and engagement, as well as the eagerness of advertisers to partner with Netflix."

Digiday reported earlier this month that Netflix has given some money back to advertisers after missing some initial audience targets for the new tier.

Netflix has not issued any guidance on how many subs it's targeting for the new tier, but said in October it doesn't expect the ad-supported option to make a "material contribution" in Q4 2022. Netflix added 2.41 million subs in Q3 2022, extending its worldwide total to 223.09 million.

"Advertising for us is 'crawl, walk, run.' We just turned it on, and it works," Ted Sarandos, Netflix's co-CEO said earlier this month at the UBS Global Technology, Media & Telecom Conference. He called advertising a "long-term initiative" for Netflix, hinting that there "likely" will be multiple tiers of ad-supported offerings from the streaming giant.

Few existing Netflix subs switching to ad tier

Good news for Netflix to be gleaned from the Antenna data is that its new ad-supported tier does not appear to be cannibalizing its ad-free subscription base. Antenna found that just 0.1% of Netflix's existing subs switched to the Basic with Ads plan in November.

Antenna said the slow start for Netflix's new service follows a trend, noting that HBO Max also saw mild pickup when it launched an ad-supported option in June 2021 – about 15% of the service's US sign-ups that month were for the HBO Max with Ads option. Cannibalization trends were also relatively minor, with just 0.2% of existing US HBO Max subs switching to the ad-supported plan in its launch month.

Netflix will no doubt like to see another HBO Max trend play out as consumers become more aware of its new ad-supported tier. Antenna noted that the popularity of HBO Max with Ads option has grown over time, accounting for nearly one in three sign-ups over the course of its first year in the market.

Antenna estimates that 21% of HBO Max subscribers were on the ad-supported plan in November 2022. Among other major streaming services, 44% of Discovery+ and Paramount+ subs take an ad-supported tier, while 57% do the same for Hulu's subscription VoD service. Some 76% of Peacock users take an ad-supported option. Notably, Peacock also offers a completely free, ad-based tier that features a smaller library than Peacock tiers that require a monthly subscription.

Related posts:

— Jeff Baumgartner, Senior Editor, Light Reading