What a week it’s been for Netflix. One they’ll want to forget given the disastrous results and their executive team seemingly on the back foot from the get-go. Two main headlines have emerged this week that have seemed to have confused people so we’re here to lay out what exactly is happening.
Don’t want to dig into the details below? Here are the headline facts you need to know about:
- A cheaper ad-tier supported version of Netflix is coming reportedly by the end of 2022.
- It will not replace the premium tiers of Netflix and if you pay for a premium tier, you will not have ads.
- The ads will be akin to how the ad-tiers work on rivals such as HBO Max, Peacock, and Hulu.
Has Netflix Run Ads Before?
Not in the traditional sense but Netflix has dabbled with advertisements in the past.
Back when Netflix was solely focused on its DVD business, they launched an advertising business. They launched typical banner ads (the same you see on our site in the content on mobile or on the right on desktop) via their website and even had printed ads on their DVD envelopes.
According to a former Netflix VP of Product, implementing ads in that manner caused “no retention impact” and “delivered meaningful profits”.
Of course, in recent years, Netflix’s DVD business has become a secondary part of Netflix’s business with the core focus now being its streaming business which has never featured advertising and instead focused only on subscriptions.
We have seen product placement advertising within some of Netflix’s shows before. Ben & Jerry’s showed up in Dad Stop Embarrassing Me!, Budweiser in The Ranch, and of course, the painful PS Vita scene in House of Cards.
Why has Netflix changed its mind on ads?
A redline for years may soon be disappearing into the ether. Ads look like they’re coming to Netflix.
As recently as September 2020, Reed Hastings spoke about the service being ad-free saying “It’s a judgment call… It’s a belief we can build a better business, a more valuable business [without ads],”.
The recent downturn in Netflix’s business is down to many factors including slowing subscriber growth, increased churn, and content problems. That’s already led to Netflix being smarter with content spending, layoffs and as we now know, ads.
Ted Sarandos, Netflix’s co-CEO, said recently on ads “We’ve left a big customer segment off the table, which is people who say: ‘Hey, Netflix is too expensive for me and I don’t mind advertising,'”
Will everyone have ads on Netflix?
Simply put. No.
You will have to either signup to an ad-supported tier which will be cheaper or downgrade your current subscription. Netflix is expected to continue to have premium tiers with no advertisements.
Let’s begin looking into what commercials/ads look like on Netflix.
The most egregious misinformation about this one is not going into detail about what ads actually look like on the platform. Headlines like PopCulture’s (owned by ViacomCBS) “Netflix Officially Adding Commercials” fails to mention the structure of what ads actually look like and went viral with this Tweet seen below.
Only the bottom line of that article adds the caveat “The Netflix CEO did stress that there would still be an ad-free option if subscribers wish to utilize it.”
Now it’s not actually clear right now how ads will actually look on Netflix.
The most common with rival streamers are pre-roll ads which is where several ads play before the content begins.
We do know that Reed Hastings cited competitors like Hulu and HBO Max who are doing it successfully. So the likelihood is that Netflix will incorporate a lower-priced tier (replacing the basic tier seems most adequate) that has ads. Anyone currently paying for Netflix at the current prices will not see ads.
Will all content be available on Netflix’s ad tiers?
This is a potential monkey-wrench in Netflix’s plans. As the Too Much TV Newsletter points out, having all of the Netflix library available to those on the ad tier will likely mean having to renegotiate with some of the people they license content from.
The newsletter writes:
“Netflix reportedly is proposing to just pay a flat premium over the original contracted price. But some licensees are apparently balking at the idea, which may mean that some higher-profile licensed titles (and there are more than you might think) won’t be available for streaming on the ad-supported tier.”
Peacock ad-tier vs Premium is a good example of not all content being available to everyone. According to JustWatch, Peacock Premium boasts 2,948 titles whilst the cheaper tier only has 2,631 titles.
How much will Netflix’s ad plan be?
No pricing has been officially announced as of late.
Here’s how Netflix’s competitors price their ad tiers vs ad-free
- HBO Max – With Ads $9.99 – Ad-Free $14.99
- Hulu – With Ads $6.99 – Ad-Free $12.99
- Paramount+ – With ads $4.99 – Ad-Free $9.99
As a reminder, in the United States, Netflix has three tiers currently. The lowest plan is restricted to 480p at $9.99 whilst the highest tier is $19.99.
Former VP of Product Management at Netflix suggests the plan could be around the $5 a month mark in line with Paramount+.
When will Netflix Ads be coming?
The NYTimes reports that ads could be launching on Netflix as soon as the end of 2022. Hastings, in an earnings call in early 2022, said that they’d try to “figure it [ads] out over the next year or two.” but that plans for ads on Netflix have reportedly sped up with a note telling staffers “Yes, it’s fast and ambitious and it will require some trade-offs.”
NYTimes also adds that the ad-supported tier will likely release “in tandem with our broader plans to charge for [Netflix account] sharing.”
What’s currently unclear too is whether it’ll be a phased rollout of ad-tiers around the world.
We’ve seen numerous experiments such as the Netflix top 10s launching first in the United Kingdom, Netflix’s FAST channel called DIRECT in France, and password sharing crackdown in select Latin American regions.
Puck News suggests that most analysts think there will be a phased launch with foreign markets being the first to receive the new tier.
Where is Netflix going to get its ads from?
Netflix doesn’t have ad infrastructure which is why we’ve had dozens of articles speculating about where exactly Netflix will source its ads from.
Among the contenders according to sources like BusinessInsider, Bloomberg, CNBC, and others include Roku (who Netflix was rumored to buy), NBCUniversal, Google, and The Trade Desk.
That’s all we know about the ad tier on Netflix so far. Will you still subscribe to Netflix’s premium tier? Does an ad-tier interest you? Let us know in the comments.