TV streaming giants’ ad tiers will be flop of the decade
It will draw in a whole new range of priceconscious customers. It will reboot growth in a market that has stalled. And it will present a challenge to the traditional broadcasters and threaten the billions of pounds they still make from selling slots to the big consumer brands. When executives at Netflix and Disney Plus looked at the PowerPoint presentations for launching cheaper ad-supported packages it probably appeared to be the perfect move. Better value for the customer and more money for the company. Everyone wins.
Well, perhaps. Yet now the Netflix package is finally here, and the Disney rival will be ready for the crucial Christmas market, something about it is not quite right.
The package with ads breaking up the programmes is only marginally cheaper than the standard version. It doesn’t have all the same shows. And the ad slots don’t undercut the traditional broadcasters. It looks like a lame compromise that even the company itself doesn’t believe in. In reality, ad-supported streaming looks set to become the corporate flop of the decade. And it is certainly not going to rescue the plunging share prices of the two giants of the streaming industry.
Even with the new season of The Crown starting this month, Netflix has clearly realised it needs something to get its subscriber numbers rising again. Though the latest quarterly numbers were slightly better (it added just over 2m users) its base has stalled at about 220m people worldwide. The years of rapid growth that made it one of the hottest technology companies in the world, and one of the best-known brands, have come to an end.
Much the same is true of its newer rival Disney Plus. After a formidable launch, it pulled ahead of Netflix, not an outcome anyone would have predicted, but the rate of growth has slowed down significantly since the start of this year.
To put it bluntly, the market appears to have delivered its verdict. There are a couple of hundred million people who will pay for highquality streamed television, or even for Emily in Paris, but not many more. The streamers looked about to turn into ex-growth businesses, and that is never a good place to find yourself.
The answer? A cheaper, ad-supported package. For the mild inconvenience of a few adverts breaking up a show, you can now get Netflix for £4.99 in the UK, or $6.99 in the US, with similar prices elsewhere. Disney will follow soon, with an ad-supported package likely to cost $6.99 replacing its cheapest deal, and with the ad-free version costing $10.99. Anyone who liked the idea of the service but was put off by having an extra bill to pay can now be persuaded to sign up. Well, maybe. When I mentioned it to my 15-year-old daughter Claudia, possibly Netflix’s most avid customer (at least when she is meant to be doing her homework) she just laughed. And she has a point. Here’s why.
In reality, the Netflix offering hardly seems to have anything going for it at all. The package with ads will cost £4.99 compared to £6.99 for the cheapest ad-free package. It is a saving of less than £2 a month, not exactly a significant sum.
Even worse, licensing restrictions mean that not all the same programmes will be available to the ad-tier subscribers. For the people buying the adverts it is hardly any more appealing.
According to industry reports, slots will be more expensive for advertisers than on rival streaming services such as ITV Hub, even though the agencies have no idea what they are worth, or whether people will pay any attention to them, or even how many people will sign up.
The Disney plan looks just as much of a mess, although it has at least upped the price of its ad-free package to create a slightly wider price differential between the two products. But even that is fraught with risk.
Many subscribers might decide they can live without another Star Wars spin-off and cancel completely. One point is obvious.
Clearly neither company really believes in this model. So they have come up with a completely half-hearted offer that will please no one.
If they genuinely wanted to do something bold they could have taken a far more radical approach. Either Netflix or Disney could have launched a completely free ad-supported tier. That would have locked up everyone who has a broadband connection and TV set for either company. And either of them could have launched an ambitious ad platform that undercut traditional broadcasters, offering brands access to far bigger audiences at far lower costs, and using their deep pockets to drive rivals out of the industry. And they could have offered microtargeted television advertising to rival the kind of niche opportunities to small companies that make Facebook such a powerful platform. Instead, they went for something that when you added it up was neither one thing or the other. It is completely meh.
It is not as if they don’t need something. Netflix’s shares are down by more than 50pc so far this year, and it looks more and more like a tempting target for one of the tech giants, step forward Apple, with every month that passes.
Disney is down by 35pc since January. Investors have worked out that vast programming budgets are needed to sustain the service, and while that was fine when subscriptions numbers were climbing, once they stall the numbers don’t look nearly so good. They needed something to persuade the next hundred million people to sign up. The trouble is, the ad tiers are not the answer.
It may not be quite up there with Cowboy Bebop, a Netflix show that was promptly cancelled within the first minute of anyone actually watching it. Even so, this is starting to look like the corporate flop of the decade, and one that will do a lot of damage to the reputation of both companies.
‘It is not going to rescue the plunging share prices of Netflix and Disney’