Netflix Inc. is considering pricing its new advertising-supported tier at $7 to $9 a month, half as much as its current, most-popular plan, which costs $15.49 monthly with no commercials.
The goal is to attract subscribers who are willing to watch
some ads in exchange for a lower monthly rate. As the streaming TV pioneer
prepares to introduce advertising for the first time, it's trying to strike a
careful balance between reaching a more cost-conscious consumer while still
offering a pleasant experience.
Netflix plans to sell about four minutes of commercials per
hour for the ad-supported service, far less than most of its peers, according
to people familiar with the company’s plans.
The company will show advertisements before and during some
programs, but not after. It’s also telling advertisers it wants to make smaller
deals upfront so it doesn’t overpromise and overwhelm viewers with the spots,
said the people, who declined to be identified because the discussions are
private.
Netflix plans to introduce its new cheaper option during the
final three months of the year in at least a half dozen markets. The company
has said the full rollout may have to wait until early next year. Details of
the service have begun to trickle out as Netflix makes its plans and meets with
business partners. A lot could change as the company builds out the business.
Netflix has long sold itself as a customer-friendly
alternative to cable TV. People could watch TV shows and movies on-demand and
without advertising. They can cancel (or sign up) at any time without much
hassle and access a deep catalog of programs. But subscriber losses in the
first half of this year forced management to finally embrace advertising.
They believe the cheaper tier will both attract new
price-conscious customers and give those ready to cancel a less-expensive
alternative. The new tier could generate $8.5 billion a year globally for
Netflix by 2027, including subscription fees and ad sales, according to media
consultancy Ampere Analytics.
Many cable networks feature between 10 and 20 minutes of
advertising per hour. Most streaming services offer less than cable. Some, like
Hulu, frustrate viewers by showing the same commercial over and over again.
Netflix is hoping to avoid these complaints about frequency
by starting slow. It won’t be using too much targeting to tailor ads to the
viewer. Most people will see the same ads. And Netflix wants to make sure the
same spots don’t repeat over and over again.
Much of that work will be handled by Microsoft Corp., which
won the right to be Netflix’s exclusive advertising technology and sales
partner. The tech giant has little experience in streaming TV, but has built a
$10 billion advertising business in the last few years. Netflix is handling
conversations with film and TV producers, while Microsoft is talking to a lot
of the advertising agencies and technology providers. The companies have also
met jointly with some ad agencies.
Netflix has declined to comment on any specifics about its
plans, and many advertisers, partners and investors still have questions.
Netflix hasn’t provided forecasts of how
many people it thinks will sign up for the ad tier, nor has it said when it
will start to allow third parties to measure its viewers.
Netflix has guarded its audience metrics, which it claims
are proprietary and give it a competitive advantage. The company was always
able to say those numbers were irrelevant, since it didn’t sell ads. But
advertisers will require that Netflix work with an outside firm, like Nielsen,
to measure how many people are actually watching.
Netflix is moving into advertising around the same time as
Disney+, its biggest rival. While Disney is raising the price on its main plan
and keeping the current price for its ad-supported version, Netflix is actually
lowering the price of its service.
Leadership at Netflix has begun to make decisions about what
programs will and won’t have ads. The company won’t show advertising in kids’
programming, at least not at first. Nor will it include ads during its original
movies. The company would like to include advertisements in many of its own TV
shows. It’s also pursuing rights to put ads into ones it licenses from
partners. Studios like Sony, Universal, Warner Bros. and Paramount are happy to
charge Netflix to put ads in old movies or old TV shows that were originally
aired with ads. They are less eager to allow ads in newer programs.
Advertisers, meanwhile, are celebrating Netflix’s decision. The
growth of ad-free services like Netflix, Amazon Prime Video and Disney+
prompted an existential crisis among marketers. They worried that TV, once the
largest advertising sector in the world, was being taken over by services that
didn’t run advertising. One agency projected that the amount of time people
spent watching ad-supported video would decline 6% by 2025. Now that Netflix
and Disney+ are entering the field, they
say it will actually go up by 1%.
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