Ads Coming Soon to Netflix

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Ads are coming to Netflix, maybe even sooner than expected.

The Wall Street Journal reported that Netflix has advanced the launch of its ad-supported subscription tier to November. The Sydney Morning Heraldmeanwhile, reports that Australia is among the first countries likely to see ads on Netflix later this year.

Netflix first announced that it would introduce a new, cheaper, ad-supported subscription tier in April. It was an about-face from a company that had built an ad-free on-demand TV empire. Indeed, it wasn’t until 2020 that Netflix CEO Reed Hastings ruled out advertising on the platform, saying “you know, advertising seems easy until you get into it”.

The change of heart followed Netflix’s first quarter 2022 earnings report, which saw a loss of subscribers for the first time in more than a decade. The addition of ads to the platform is a clear sign of the emergence of a period of experimentation in the streaming landscape.

How will this work?

It is important to note that all Netflix subscription levels are ad-free. The current plan is that there will be a newly introduced, cheaper ad-supported subscription tier, targeting the US market around $7-9 per month as the price. This will be a discount from the current cheapest plan of $9.99 (AUD 10.99) per month. These prices will be adapted to the different currency markets in which Netflix operates and the existing price levels in these markets.

By bringing a hybrid advertising/subscription stage, Netflix is ​​adopting an economic model already present on other streamers like Hulu. Netflix is ​​keeping this tier hybrid, which means that while the new tier will be cheaper, it won’t be free, like the ad-supported streaming available on Peacock.

Advertising presents complex new technological and business challenges for Netflix, which has never worked in this market before. To enter this new market, Netflix announced that advertising would be served through a partnership with Microsoft.

The partnership with Microsoft has allayed some fears about Netflix entering a new media market and gives Netflix access to Microsoft’s extensive ad serving infrastructure.

Netflix has announced that original movie schedules may remain ad-free for a limited time after release, and that original content and some licensed children’s content will remain ad-free.

In addition to staying away from children’s advertising, which in Australia is heavily regulated by government and industry codes, Netflix also steers clear of any advertising buyers in cryptocurrency, political advertising and gaming. by chance.

The advert will air around four minutes per hour of content – for context, Australian commercial free-to-air TV networks are limited on their main channels to 13 minutes per hour and 15 minutes per hour on several channels between 6am and midnight.

Netflix will also have limits on the number of times a single ad can appear for a user and it is expected that ads for movie content will run in a pre-roll format, without interrupting functionality.

Advertising in the streaming industry

Netflix isn’t the only subscription service to announce advertising as part of new pricing strategies. Earlier this year, Disney reported a very successful quarter from a subscriber uptake perspective, growing 15 million subscribers, but streaming-induced losses were $300 million above estimates.

Disney also announced that an ad-supported Disney+ subscription option will be available in December. The Wall Street Journal reported that the December schedule given by Disney is what prompted Netflix to present its advertising plans.

Television consumers are historically well-accustomed to television advertising – in Australia the free commercial networks Seven, Nine and Ten air advertising, public broadcaster SBS airs a limited amount of advertising and even pay-TV provider Foxtel is supported by both subscription fees and advertising. The ad itself isn’t new to the public, but it wasn’t present on a number of premium streaming platforms like Netflix before.

Streaming platforms like Netflix and Disney+ are looking for ways to both reach new audiences and maximize revenue for each user. There is a belief among senior executives that providing a cheaper ad-supported tier will tap into the market of audiences who both don’t fear advertising and view current subscription prices as too high.

There is also evidence from other streaming platforms, such as Hulu and Discovery+, that have offered ad-supported subscription tiers that these tiers can generate higher average revenue per user[[https://baremetricscom/academy/average-revenue-per-user-arpu(ARPU)thanhigherpricedsubscription-onlytiers[[https://baremetricscom/academy/average-revenue-parutilisateur-arpu(ARPU)quelesniveauxd’abonnementuniquementpluschers[[https://baremetricscom/academy/average-revenue-per-user-arpu(ARPU)thanhigherpricedsubscription-onlytiers

ARPU is a metric used in the streaming industry that looks at how much money a company makes from each subscriber after business costs have been deducted. Increasing a subscriber’s revenue may be driven by increasing subscription prices, driving subscribers to more expensive subscription levels, reducing business costs, or adding additional revenue streams like advertising.

In 2021, Discovery CEO David Zaslav noted that Discovery+ was generating more revenue per subscriber from its cheaper ad-supported tier than from its more expensive subscription-only tier through advertising revenue. Zaslav remarked that advertisers wanted to reach an audience that was largely unreachable through other television mediums.

With that in mind, Netflix and Disney are betting that their ad-supported tiers can work the same way and increase the revenue they can generate per subscriber.

Experimentation in the streaming industry

Experimentation around established business strategies dominates today’s streaming landscape. HBO Max, under newly merged parent company Warner Bros. Discovery, is now moving to licensing content in select markets rather than streaming on its own platform. With the release of Lord of the Rings prequel The Rings of Power, Amazon Prime Video finds out if its experience with the most expensive TV production of all time at $715 million (AU$1.05 billion) will pay off to the public.

There are experimentations in the streaming industry in licensing strategies, show TV, pricing models and beyond. The results of this experimentation will take time. But what the arrival of advertising on Netflix signals is that established strategy no longer rules the streaming landscape.

The conversationThis article is republished from The Conversation under a Creative Commons license. Read the original article.

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