After years of Netflix execs spurning the idea of serving up commercials to viewers, the streaming giant is flipping the switch on its first cheaper, ad-supported plan next month.
Netflix Basic With Ads will launch in the U.S. on Nov. 3 at 9 a.m. PT, priced at $6.99 per month, the company announced. The cheaper plan will be available in 12 countries: Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, the U.K. and the U.S. It will first roll out in Canada and Mexico on Nov. 1.
Basic With Ads will be $3 cheaper than Netflix’s Basic plan ($9.99/month in the U.S. currently), which provides the ability to stream on one device at a time. Previously, the Basic plan has not supported HD, but with the launch of the ad tier, Netflix will provide video quality of up to 720p HD for both Basic With Ads and the plan with no ads.
The ad-supported plan will not include Netflix’s full content catalog, which the company previously had disclosed. A “limited number of movies and TV shows won’t be available due to licensing restrictions, and we’re going to be working on reducing that over time,” Netflix chief operating officer Greg Peters told reporters. Depending on country, about 5% to 10% of titles will be unavailable on Netflix Basic With Ads, Peters said. In addition, customers on the ad plan will not have the ability to download titles for offline viewing.
The about-face by Netflix to embrace ads, after insisting commercials were antithetical to its ad-free value proposition, comes as the company saw it subscriber base shrink in the first half of 2022 amid fierce competition and market saturation. Netflix Basic With Ads is an attempt to reach a new cohort of price-sensitive consumers — and keep the company competitive with rivals that also offer ad-supported options.
The new ad tier “represents an exciting opportunity for advertisers — the chance to reach a diverse audience, including younger viewers who increasingly don’t watch linear TV, in a premium environment with a seamless, high-resolution ads experience,” Peters said.
Asked about the risk of Netflix members downgrading from higher-priced ad-free plans, Peters said Netflix expects total revenue from the ad-supported tier to be “neutral to positive” compared with the no-ads Basic plan. “From our perspective, we’re not trying to steer people to one plan or the other,” he said.
At launch, ads will be either 15 or 30 seconds long (and 20 seconds in Spain), which will play before and during TV shows and films. The Netflix tier with ads will serve an average of 4 to 5 minutes of ads per hour, roughly in line with the ad loads of Peacock and Disney+ with ads. New-release movies will include only pre-roll ads to “preserve the cinematic experience,” Peters said.
Subscribers to Netflix Basic With Ads will need to provide their date of birth and gender to sign up, as the company eventually plans to target ads based on that demographic data.
Netflix had previously shared the Nov. 1 launch date for the ad-supported plan with ad buyers, indicating it wanted to get ahead of the December debut of Disney+’s ad tier. The launch was accelerated from the previous early 2023 timeline Netflix had told investors this summer.
To head up its advertising business, Netflix in August hired Snap’s two top ad execs: chief business officer Jeremi Gorman and VP of sales Peter Naylor.
Netflix, which has an exclusive ad-sales and tech agreement with Microsoft, had floated ad prices of $65 per thousand impressions (CPM) — a fairly high rate by industry standards, which was seen as a ceiling from which buyers would negotiate downward.
Gorman, Netflix’s president of worldwide advertising, declined to discuss CPM rates in speaking to reporters Thursday. She claimed Netflix had nearly sold out its inventory for the initial launch globally with “hundreds” of different advertisers in categories including automotive and consumer packaged goods, but she didn’t identify which marketers are in the initial mix. Netflix will not accept certain categories of ads, including political and issues ads or advertising for illegal products or tobacco, Gorman said.
Netflix had been asking for a $10 million minimum commitment in annual ad spending from agencies, according to industry sources, and was seeking to lock in initial ad buys by Sept. 30. The streamer has told ad buyers it expects to have about 4.4 million customers worldwide on its ad-supported plan by the end of 2022. Peters said Netflix will provide a forecast when the company reports third-quarter 2022 earnings on Tuesday, Oct. 18, after the market closes.
Wall Street analysts generally are bullish on the long-term prospects for Netflix’s ad-supported tier. However, in the near term, “While we see the ad-supported tier as a [total addressable market] expander” it’s unclear that it will deliver “meaningful upside to expectations,” Morgan Stanley analyst Ben Swinburne wrote in a research note to clients Thursday.
In terms of targeting, advertisers will be able to make buys against Netflix’s Top 10 TV shows in each region as well as content genres like action, drama, romance and sci-fi. But for the first phase of the ad tier’s rollout, Netflix will not be able to serve ads based on parameters such as geography (except by country) age, gender, viewing behavior or time of day.
Advertisers also will be able to choose for their ads to not appear on adult-oriented content “that might be inconsistent with their brand,” according to Peters. For example, buyers will be able to specify that their ads not appear within programming that contains sex, nudity or graphic violence.
Initially, Netflix’s ad-supported service will not have any third-party attribution. According to Peters, the company has partnerships with DoubleVerify and Integral Ad Science (IAS) to verify the viewability and traffic validity of ads starting in Q1 2023. Nielsen’s Digital Ad Ratings (DAR) service in the U.S. will start measuring Netflix Basic With Ads “sometime in 2023,” Peters said, and eventually ad viewing will be reported through Nielsen ONE Ads.
Netflix had told ad buyers it would set frequency caps (how often an ad spot may be served to individual viewers) of one per hour and three per day per viewer, which is much lower than other ad-supported streaming-video services.
Netflix shared pricing for each of the 12 launch markets for the ad tier:
Netflix also released an example of what a pre-roll ad will look like in the new plan:
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