Netflix Now Offers Ad-supported Subscriptions

It’s long been rumored that Netflix was considering adding advertising to its streaming service. That time is finally here.

Beginning in November in 12 countries (including the U.S., U.K., Australia, Brazil, Britain, Canada, Germany, and South Korea), Netflix will offer a $6.99 per month subscription option (Basic With Ads) that will show four to five minutes of advertising for each hour of content watched. The 15 to 30-second ads will show before and during TV shows and older movies; for new movies ads will only be shown before the movie begins.

Netflix’s subscriber base dropped significantly this year for the first time in a decade. Netflix is showing signs of maturing compared to other streaming services that are earlier in the cycle and must remain competitive. In 2021 ,it release 500 original programs (roughly $20 billion/year) but only a small percentage became hits.

Why the new pricing package? It’s one of Netflix’s key strategies to increase its subscriber base and improve average revenue per user. The company hopes that the new service option will encourage viewers who currently share passwords to get their own subscription, thereby increasing the customer and revenue base. (Netflix estimates that it has 100 million users who share passwords, making it a significant loss of potential revenue.)

For advertisers wanting to promote their brands, the new service is an opportunity to extend their reach to specific segments based on country and genres such as action, comedy, romance, and more.

Netflix isn’t alone in offering new subscription tiers. Disney+ will soon offer an advertising-based subscription in December at $7.99 per month. Hulu has long offered ad-supported subscriptions which accounts for more than half of its customers; HBO Max also offers ad-supported subscriptions.

Will you switch to the advertising version?

Group Activities and Discussion Questions:

  1. Poll students: What streaming services do they use? How much do they spend each  month? Is it worth it? Do they share passwords?
  2. Discuss the product life cycle. Where is Netflix in the PLC? What is the biggest challenge in that part of the PLC?
  3. Show a WSJ video that outlines Netflix’s strategy: https://www.wsj.com/video/series/news-explainers/netflix-hit-a-subscriber-peak-heres-how-it-plans-to-keep-growing/62158AB3-FBBB-4C38-8F72-30F8E27C9CD7
  4. Divide students into teams. Have each team build a price chart that includes the options from streaming services such as Disney, Prime, Paramount, Showtime, Hulu, etc.
  5. Discuss various pricing models. Which model is Netflix using?
  6. Have students develop pricing objectives for Netflix.

Sources:  Krouse, S. (13 October 2022). Netflix’s ad-supported plan will launch in November at $6.99 a month. Wall Street Journal; Sperling, N. (13 October 2022). Netflix to offer cheaper ad option beginning Nov. 3. New York Times; other news sources

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