Netflix Is Adding Ads. What That Means for You

Netflix has introduced commercials after years of resisting advertising on its streaming platform.

Ted Sarandos, Netflix’s co-CEO, confirmed Thursday that Netflix would be testing a lower-priced, ad-supported subscription tier. Sarandos spoke at Cannes Lions to say that Netflix is in talks with multiple partners to make it easier to enter the advertising world. Those potential partners include Comcast and NBCUniversal as well Google.

Sarandos’ confirmation comes in the midst of a rough year for Netflix. Netflix lost over 150 subscribers last year due to increased competition from other entertainment streaming services. The company also had to deal with backlash when it cracked down on password sharing.

“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,’” Sarandos said. “We’re adding an ad-tier. We’re not adding ads to Netflix as you know it today.”

Reed Hastings was the Netflix CEO. In fact, he had previously telegraphed Netflix’s advertising plans. Hastings suggested that advertisements could soon be in development during an earnings call for the first quarter in April. “Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice,” he said. “And allowing consumers who like to have a lower price, and are advertising tolerant, to get what they want makes a lot of sense.”

Then you can go to the New York Times reported May 29th that Netflix employees had been told by Netflix to launch an advertising-based plan before the end of this year. It was earlier than originally expected.

Netflix lost over 200,000 subscribers within the first three month of 2022. A shareholder letter in April predicted that more losses would follow. The company’s stock price has plunged more than 70% this year (compared with the S&P 500’s 21% decline), wiping out roughly $70 billion of its market capitalization and prompting shareholders to file a lawsuit alleging that Netflix misled investors about declining subscriber growth.

Netflix hopes to increase revenue through the adoption of ads. And it’s not alone. Hulu, HBO Max and HBO Max offer cheaper ad-based subscriptions than commercial-free ones. Disney+ also announced that an ad supported subscription would be available in the latter part of 2022.

With Netflix’s current monthly subscription model, subscribers in the U.S. can use their account on one, two, or four screens at once and prices reflect the number of screens available—ranging between $9.99 and $19.99. Subscribers who want to see commercials will be able to pay a bit less for the new ad-supported pricing tier.

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