Netflix to offer cheaper, ad-supported subscription

Netflix’s ad tier is here. The streaming company unveiled details Thursday of its effort to jump-start subscriber growth after the company’s first-quarter revelation that it had lost paying customers for the first time in a decade.

Beginning Nov. 3 in the United States, Netflix will offer a $6.99 advertising-supported subscription called Basic With Ads, a lower-cost option with targeted advertising that will show people four to five minutes of ads per hour of content.

This tier will also be available in 11 other countries in November: Australia, Brazil, Britain, Canada, France, Germany, Italy, Japan, South Korea, Mexico and Spain.

The ads, ranging from 15 to 30 seconds, will play before and during television shows and older films. For new films, the ads will play only before the movie begins.

Subscribers opting for this tier will not be able to download titles for later viewing, a prohibition based primarily on technical challenges. Netflix also indicated that “a limited number of movies and TV shows,” between 5% and 10% of those on the service, wouldn’t be available when the ad tier began because of “licensing restrictions.”

“We believe that with this launch we’ll be able to provide a plan and a price for every Netflix fan,” Netflix Inc.’s chief operating officer, Greg Peters, said during a presentation to journalists.

Netflix’s current pricing options won’t change. The basic service, without ads, costs $9.99 a month. The most expensive tier, with the highest-definition resolution, is $19.99.

The advertising is being managed by Microsoft Corp., and Netflix is working with two verification companies to ensure that the ads are being seen as intended. The company also said Nielsen Holdings PLC will analyze audience reach and specific viewer demographics in the U.S. Those partnerships will begin in 2023.

Jeremi Gorman, Netflix’s newly hired president of worldwide advertising, said advertising on Netflix offers companies a chance to “reach a diverse audience, including younger viewers who increasingly don’t watch linear TV.”

To target ads, Netflix says it will collect the gender and birth date of users opting for the cheaper option.

Netflix hopes the tier will bring in new customers and encourage those who have been sharing passwords with friends and family, a user number the company believes could be as high as 100 million, to stop using others’ accounts and pay for their own.

“I think it’s a really relevant and complementary approach because obviously whatever we do with password sharing, having people be able to land in a lower-price offering is a great way to give them a chance to find Netflix and pay for it consistent with that model,” Peters said.

The advertising strategy, first announced in April by Netflix’s co-CEO, Reed Hastings, is a significant change for a company that swore off ads for years, opting instead for “the simplicity of the subscriber model.”

But Hastings, in making the initial announcement, said, “As much as I am a fan of that, I am a bigger fan of consumer choice. And allowing consumers who would like to have a lower price, and are advertising tolerant, to get what they want makes a lot of sense.”

Netflix isn’t the only streaming service to introduce ads after earlier swearing off the revenue model. Disney+ will introduce its advertising tier Dec. 8, for $7.99 a month. The ad-free model, soon to be named Disney+ Premium, will cost consumers $10.99 a month, a 38% increase from the current price.

For existing Netflix customers, the programming will not change at all. Those looking for the cheaper tier will have to choose it. Peters said the company didn’t intend to steer users to one tier over another.

“We want to take a proconsumer approach and let them land on the right plan for them,” he said. “We think that the revenue model will be fine as a result.”