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Netflix ads explained: why there’s no need to panic

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Ted Sarandos, the company’s co-CEO, confirmed this at this year’s Cannes Lions industry festival. He told reporters that an ad-supported, cheaper Netflix tier was definitely in the works. This admission comes after months of speculation. We first reported about the possibility of ads being introduced to Netflix in March. News also broke that the streaming service was losing subscribers, for the first time in more than a decade.

As is the norm on the internet, protests have been raised across social media. Many existing Netflix customers pledged to cancel their subscriptions if ads appeared on their streamer, now or in the future.

The angry mob needs to put down their pitchforks. Advertisements on Netflix will not appear if existing and new customers sign up for the next subscription tier. We think that these optional ads are a good thing for the future health of the platform. Let’s explain:

What exactly is going on?

Netflix is essentially looking to tap into a streaming market that its rivals – HBO Max, Hulu_ – have already made a profit from.

When asked about Netflix’s decision to embrace advertising, co-CEO Sarandos stated that “we’ve left out a large customer segment,” when Sarandos was asked about it. We’re adding an advertising tier, but we aren’t adding ads to Netflix today. For those who want to pay less and still watch ads, we’re creating an ad-tier. ‘”

Netflix will introduce an ad supported subscription tier to customers who are willing to pay a lower monthly cost but still get ad-free streaming. This tier is completely optional and will not appear on Netflix accounts of existing subscribers.

We will repeat that: ads will not appear on Netflix accounts of existing subscribers.

It is likely that Netflix’s ad supported tier will be similar to HBO, which was introduced last year. Disney also plans to introduce a similar plan on Disney Plus in 2022.

“It’s quite clear that [this model] works for Hulu,” Netflix CEO Reed Hastings stated in a May earnings call interview. “Disney is doing it. HBO did it. It works. I don’t think there is any doubt about that. It’s been figured out by all those companies, so I think we’ll just go in and try it.

Although it’s unclear how much Netflix’s ad supported subscription tier may cost or what restrictions this package might place on content availability, HBO’s model is a good starting point (both for potential customers and Netflix).

Subscribers to HBO Max ad-supported can access the same content as the standard tier but cannot download or stream in higher quality than 1080p.

Although Disney’s ad supported tier is not yet priced, we expect similar restrictions to be placed on content for subscribers. However, Disney Plus bosses revealed that the ad-supported tier will have a limit of four minutes per hour and be restricted when children are viewing via the platform’s child-friendly user profiles. If Netflix wants to keep up with its largest competitor, it would be smart to follow this strict approach.

Netflix bosses only confirmed in July that an ad-supported subscription plan – powered by a partnership between Microsoft — is coming to the service. However, not all movies and TV shows in the streamer’s library will be included in this new package. “There are some things that [wouldn’t be included], that are being discussed with the studios,” co-CEO Sarandos said in July.

The pricing details and duration of commercial breaks, as well as the frequency at which they will appear, have not been revealed. More information will be shared as soon as we have it.

When will this ad-supported Tier be available?

Netflix bosses confirmed that the ad-supported tier will not be available on Netflix until 2023.

“We recently named Microsoft as our technology sales partner, and we aim to launch this tier in the early part of 2023,” stated the company in its most recent investor report (opens new tab).

Optional ads for our money will appear on the streamer between February and April next years.

Are ads on Netflix a good thing or a bad thing?

Our opinion is that yes. Netflix’s decision not to allow ads to be displayed is a conscious business decision. However, it would offer more choice for customers who prefer to pay less for Netflix but still enjoy ad-free viewing.

Netflix’s equivalent ad supported tier to Disney sounds so non-intrusive that it offers a chance to make ads right. This includes the type of commercials and audiences they reach.

“As Netflix moves into this new territory it should continue its famous, relentless focus on user experiences,” Kai Henniges (CEO & Co-Founder, Video Intelligence) recently stated to TechRadar. “Digital advertising is often associated with annoying pop-ups and irrelevant content, flashy banner ads, and irritating pop-ups. But Netflix has the technology and resources to make sure that adverts provide real value to consumers and not just deliver bottom-line benefits.

“If Netflix intelligently analyzes its content, such as its topics, verticals or style, it will be able contextually match advertising demand to it. Netflix should deliver relevant ads to the film or program they are showing.

Even if you don’t believe ads can be done well, an ad-supported Netflix Tier would bring in some revenue that could and should save your favorite shows.

TechRadar’s US Editor-in-Chief Lance Ulanoff stated it in a article “When Netflix launches Adflix (TM), its subscriber numbers will explode again. It will require more subscribers to generate the same revenue as full-boat subscribers, but I believe that the streamer will soon be able to solve its cashflow problems.

“What’s next is a Netflix Spring with tons of new content initiatives and possibly an Intellectual Property acquisition (surely will buy Roku as well as the Quibi library) and the end to unexpected show cancellations.”

Paramount Plus and HBO Max have shown that a significant portion of subscribers will accept ads if they are given the chance. The latter’s customer base has almost 30% who are ad-supported after just one year .

While ‘ads on Netflix” sounds like a corporate monster, we believe both the streamer as well as its customers will be able to benefit from this move.

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