Netflix Introducing Ads: Here’s When to Expect the New Plan

by Sean Griffin

Netflix announced a new ad-supported streaming package that will debut in early 2023. The package hopes to combat its declining subscriber numbers and win over more value-conscious customers.

The company said it targets a launch of the ad-supported plan “around the early part of 2023.”

“We’ll likely start in a handful of markets where advertising spend is significant,” Netflix announced in its Q2 letter to shareholders. “Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So, our advertising business in a few years will likely look quite different than what it looks like on day one.”

Netflix hasn’t yet revealed what prices for the ad-supported plan will be. However, it’s expected to be less than the streamer’s most popular package, the Standard package. The Standard package costs $15.49 per month in the U.S. and contains no commercials. It includes two HD streams.

Last week, the streamer announced an agreement with Microsoft to serve as its exclusive advertising partner. Microsoft will be “investing heavily to expand their multibillion [dollar] advertising business into premium television video, and we are thrilled to be working with such a strong global partner,” Netflix said in the letter. “We’re excited by the opportunity given the combination of our very engaged audience and high-quality content, which we think will attract premium CPMs [cost per thousand impressions] from brand advertisers.”

Netflix added, “Our lower-priced advertising-supported offering will complement our existing plans, which will remain ad-free.”

Netflix Wants to Keep Up with Other Streamers

Internationally, Netflix’s average revenue per member (ARM) grew at a 5% compound annual rate from 2013 to 2021. They said, “so it makes sense now to give consumers a choice for a lower-priced option with advertisements, if they desire it.”

“Over time, our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners,” Netflix said in the letter. “While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues).”

However, most financial outlets believe Netflix won’t be eating its own base with the new plan. They believe Netflix’s ad-based plan could result in Netflix adding 4.3 million incremental U.S./Canada subs in 2023. Also, it could generate “significant upside” to revenue.

Morgan Stanley estimates Netflix could charge $10/month in the U.S. for the ad-based plan. That could generate $7/month per subscriber in ad revenue. Moreover, they could see ad revenue quickly ramp from $150 million in 2023 to $1.8 billion in 2025, according to projections by research firm MoffettNathanson.

However, Netflix may be late to the enter the ad-stage of the streaming wars. Most streamers offer lower-cost options with ads. These include Hulu, HBO Max, Paramount+, Discovery+, and Peacock. Disney wants to add an ad-supported version of Disney+ in late 2022. That timeline would barely beat Netflix’s goal.