Ads won’t arrive on Netflix until 2023, it was confirmed today (July 19).
When Netflix co-CEO Ted Sarandos confirmed in late June that the streaming giant was indeed planning to launch an ad-supported subscription tier, he didn’t offer a date for when such would arrive. level. However, reports based on leaked Netflix internal communications had indicated that it would be before the end of 2022.
If that was the plan, it has now been pushed back, with the company now targeting early 2023 to launch the ad tier. This news follows news that Netflix has partnered with Microsoft to provide the platform for advertising on the platform, with Microsoft being described as “Netflix’s technology and business partner”, although some are wondering. if they could end up getting more done.
Netflix executives confirmed the news in the company’s report to investors (opens in a new tab)in which they revealed that the streaming giant had lost over 970,000 subscribers in the period up to June 30 this year.
The report details the planned launch of the level, stating, “We recently announced Microsoft as our technology and business partner and we aim to launch this level around early 2023. They are investing heavily to expand their multi-billion advertising. in premium television video, and we are delighted to work with such a strong global partner. »
Netflix went on to say that they will target “premium brand advertiser CPMs” and that the tier will “likely start in a handful of markets where ad spend is significant. Like most of our new initiatives, our intention is to deploy, listen and learn, and iterate quickly to improve the offering, so in a few years our advertising business will likely be very different from what it was on day one.”
CPM stands for cost per thousand impressions, a marketing term used to refer to the cost an advertiser pays for one thousand ad impressions on a web page. For example, if a website publisher charges $2 for each CPM, that means an advertiser must pay $2 for 1,000 impressions of their ad. Google’s average CPM is around the $2.80 mark, but this statement seems to suggest that Netflix will be looking to charge more than that.
The statement is optimistic about Netflix’s plans for the ad-supported tier, saying, “Over time, our hope is to create a better-than-linear TV advertising model that’s more transparent and relevant to consumers, and more effective for our advertising partners. Although it will take some time to grow our membership base for the level of advertising and associated advertising revenue, in the long run we believe that advertising can lead to a substantial increase in memberships (through lower prices) and a profit growth. »
A lower ad-supported pricing tier is not a revolutionary idea for a subscription service. Hulu, HBO Max, Paramount Plus and Peacock already do this and Disney Plus will also offer the option this year, but it looks like Netflix is already trying to do its own thing.
Greg Peters, Netflix’s chief financial officer, told investors that the ad-supported tier will be done with an “innovation-driven view.” He added: “It’s a crawl-walk-run model. At first it will be what you know, but over time we believe there is a tremendous opportunity to leverage the DNA of innovation that we have. The breadth of our offering and the partners that we lined up, we needed to offer something that is fundamentally different from linear TV. The brands wanted to connect with Netflix content.
It’s all pretty vague at the moment, but it’s clear that Netflix has big plans for this new level.
Analysis: A Reluctant Convert
Things have moved quickly for Netflix in rolling out an ad-supported tier, which will cost less per month than its current subscription plans.
In early March, the company’s CFO, Spencer Neumann, was asked about the prospect of an ad-supported tier and would only go so far as to say he could “never say never” when one questioned him about the idea, before quickly adding that this “not something in [the brand’s] plans right now.”
Then, on April 20, during an earnings call, Sarandos’ partner-in-crime, Netflix’s other co-CEO Reed Hastings, revealed that the streaming service was then “pretty open” to the possibility. of an ad-supported level and could “figure it out over the next year or two.
It’s mid-July here and not only are ads on the way, but Netflix has teamed up with one of the biggest companies on the planet to help them get theirs on the fast track.
They talk about a good game, but company executives took a long time to even consider taking ads on their platform, a fact they acknowledged in their new investor report, writing: “At Netflix, concentration remains very important to us. These initiatives – paid sharing and advertising – introduce additional complexity.”
In November 2021, when Netflix shares were trading at $700 each, Sarandos and Hastings never imagined that 18 months later they would be rolling out to a new level in an effort to stop bleeding subscribers. This kind of growth was never sustainable, the Covid-19 pandemic was a nightmare for all of us, but it made streaming services a lot of money as people were stuck at home with nothing else to do. than watching television. Millions of people who would have happily spent their lives watching linear TV have suddenly had the time to invest in streaming services. Now that the pandemic is in the rearview mirror, this drop in subscribers is of course somewhat corrected.
This is not something investors would be happy to hear. They want to maintain those numbers. Therefore, Netflix executives are doing what they never intended to do and leaving ads on their platform. The question now is, will it work to maintain the numbers? Or, ideally, will the ads be annoying enough to entice people back into becoming full subscribers.