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Safety Net: What is Behind the Ad-Supported Tier for Netflix?

Netflix offering an ad supported tier says more than a need for cash | Agents of Fandom
But we're already showing them the money. (Credit: Filip Radwanski/SOPA Images/LightRocket via Getty Images)

An ad-supported tier isn't new, but now that Netflix is bringing one to its streamers, does it mean something other than cash flow? It's not like Netflix needs the money. CEO Reed Hastings hasn't been playing guitar outside a barbeque joint looking for tips, so he's living okay. Netflix just spent north of $17 billion for content–just for 2021. At 225 million subscribers–and 20 million subs ahead of Prime Video– Netflix is still king of the streaming mountain.

Yet, Netflix is giddy about offering its ad-supported tier. It's easy to say, “They just want more money.” Of course, they do. Wouldn't you? But it's not spare change inspiring the change at Netflix; it's about streaming supremacy.

Nothing but Net

Netflix begins ad supported tier Source Agents of Fandom | Agents of Fandom
The Jeffersons aint the only folks movin on up <br>Source Venti ViewsUnsplash

It was only a matter of time before Netflix caved and offered an ad-supported tier. Sure, long-time subscribers may have groaned about it for a minute, but this announcement can't be a surprise. All the Joneses are doing it, so why not?

Here comes “Basic with Ads,” which is some premier branding (yawn). Netflix announced this week details about its ad-supported tier that begins November 3. If this interests you, here is your summary:

  • Netflix offers a competitive price. At $6.99 a month, which is $1 less than both Disney+ and Hulu with ads
  • Commercials will be 15 or 30 seconds in length but won't play during streaming–only before and after content
  • Collectively, each piece of content will have 4-5 minutes of commercials at 720p resolution

For years, Netflix has sworn off an ad-supported tier like garlic to Dracula, a Crucifix to Linda Blair in The Exorcist, or common sense to Kanye West. Suddenly, they are among the rest of the streamers. It is par for the course these days. With commercial television struggling to exist like a dinosaur during the Ice Age, streaming is where the money goes.

In the advertising world, it's called OTT–“over the top” advertising. That means providing broadcast content is going “over the top” of existing broadcast and Internet services. And once a kicking dummy to brands has escalated 43% annual growth from 2020 to 2022. So? Well, that equals $2 billion in ad revenue. All that cash is leaving “regular TV.”

Why wouldn't Netflix want a piece of that pie? Easy. It's not only about money.

Stepping Up an Ad-Supported Tier

Netflix | Agents of Fandom's ad-supported tier is a partnership that works...for them. Source: Agents of Fandom
Source CNBC

We know Netflix now has Basic (720p), Standard (1080p), and Premium (4K/UHD) plans but why not? Yet, even with countless more millions coming to Reed Hasting's piggy bank, anyone can see this isn't only for money.

Here's what else you need to know:

  • This past April, the stock of Netflix (NASDAQ: NFLX) took a bath! The Q1 2022 report announced that the streamer lost subscribers for the first time in a long time (10 years).
  • 9 Wall Street firms downgraded the stock, which cost the streamer $50 billion in market cap
  • Netflix has blamed everything they could for keeping shareholder confidence (i.e., increase in competition, COVID restrictions), but 200,000 subs bounced anyway
Netflix ad supported tier could be a last ditch effort to stay on top | Agents of Fandom

Speaking of that competition, Netflix has been forced to look over its shoulder because it's feeling footsteps on the ground and hot breath on its neck.

  • In Q2, Netflix lost 2% in SVOD (streaming video on demand) market share. During the same time, Prime Video gained 1% (yes, The Rings of Power did that)
  • HBO Max (House of the Dragon) and AppleTV+ (Ted Lasso) gained 2% on Netflix to add a shaker of Kosher salt to that wound.
  • Upon that glance backward, Netflix gained 37 million subs in 2020, but, eh…only 18 million in 2022

Money motivated this ad-supported tier change. But being kicked smooth off that summit forced it. Do you see? Netflix has fallen and gets up. When you're the best, you wear a target on your back. There are no days off. Good thing all those competitors are coming up behind Netflix. They'll be there for impact when Netflix falls.

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