Netflix Considers Ad-Based Subscription, Could Shake up SVOD Business

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Raise your hand if you remember when a Netflix subscription was $8.99 a month? 🙋🏾‍♀️

Minus all the fancy tiers, their initial subscription model, and the exclusively intriguing content attracted subscribers and made them the category leader and most popular SVOD platform that they are today.

These days, they are just doing too much, and it shows after a recent Q1 earnings call, their CEO Reed Hastings acknowledged a need for something to change.

“Think of us as quite open to offering even lower prices with advertising,” Netflix co-CEO Reed Hastings said Tuesday after announcing earnings.

Netflix Sees New Lows

It’s quite clear to the majority of the world that Netflix has been making a ton of changes, and in January, they raised the price of the standard tier plan by $1.50, making it now $15.49. For their premium plan, which includes “Ultra HD,” subscribers are paying a whopping $19.99 a month, phew!

With this being said, it comes as no surprise that Netflix announced on Tuesday an alarming net global subscriber loss of 200,000 in the first quarter of 2022. Simply put, it’s getting too pricy, and their competitors, other major legacy-owned premium streaming services, are way cheaper.

This news also led to Netflix’s stock market value decreasing, now at ~$212.75, and the subscription video-on-demand (SVOD) platform predicts it will lose two million subscribers in Q2 yikes.

This is the first time Netflix has lost subscribers in over ten years, and they’re wearing their hearts on their sleeve regarding how they feel about it.

These all-time lows have Netflix execs contradicting themselves as they are now exploring other avenues of advertising.

Hastings said: “Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription.”

“But as much as I’m a fan of that, I’m 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. So that’s something we’re looking at now.”

Who Even Has Their Own Netflix Subscription These Days?

At this point, the streaming service recognizes how password sharing may have contributed to this loss, as it disrupts the platform’s ability to monetize the service entirely. Netflix claims that password sharing took place in around 100 million additional non-paying households, including 30 million in the U.S. and Canada.

Netflix will do anything to get their numbers back up, and they’re looking to crack down on password sharing. According to analysts, this pressing issue has led Netflix to consider charging users who share passwords with people outside their homes an additional $2 to $3 a month. (They’re already testing password-sharing crackdowns in Latin America.)

Now this sucks for consumers.

How Will Netflix Make This Happen?

Since Netflix has excluded itself from this aspect of the media industry for so long, the only way it will be able to bring its new ad-based subscription tier into fruition is by partnering with ad tech firms. We bet that they’ll also launch a self-service option, or build out their own ad tech, as other streamers have.

According to Netflix execs, they plan to start selling ads in the next year or two, and ad agencies and CTV tech companies are yearning for a piece of the pie. “Netflix has some of the most coveted Connected TV inventory in the world right now,” said Adam Epstein, co-president of Perpetua, an ad tech software firm.

The Trade Desk has developed a reputation for partnering with media companies and publishers on ad tech and seems to be an optimal fit for Netflix to partner with on their ad infrastructure. TTD most recently linked up with Disney+  to provide the media conglomerate with programmatic activations, as well as the ability for buyers to execute digital upfront commitments across all of  Disney’s inventory — including HULU‚ via one deal ID.

“Netflix has been really good at licensing and producing content that resonates specifically in different geographies,” said Andre Swanston, senior VP of the media and entertainment vertical at TransUnion, the consumer data technology platform. “They should use that same mindset to customize these ad models.”

What Does This Mean for Other SVOD Platforms?

The ad-supported video-on-demand market has evolved and is now “too big to ignore.” Some consumers have shown that they are open to settling for a cheaper option with ads, like on Hulu, so Netflix thinks it could work for us if it works for them. But will this ultimately take away from Netflix’s credibility and reputation? They took pride in being ad-free for so long.

Some of Netflix competitors also suffered losses after news  broke about the streaming giant’s potential plans to break their ad-free promises. After-market trading of Roku was down 6.5% to $109.18, while Paramount Global sank 5.2% to $34.38, Walt Disney dropped 5.2% to 125.07, Warner Bros. Discovery went down 3% to $23.75.

If Netflix was the first SVOD to see these kinds of extreme losses, one might predict that other SVODs can expect to see similar results in the near future.

Other Variables Affecting Netflix Subscription Decreases

Many believe other variables contribute to the massive Netflix subscription decline. For one, ad tech twitter has found that TikTok has hypnotized the consumer, so we are sure that takes away from SVODs.

And then, of course, there is the new content or lack thereof. The Orange Is the New Black and House of Cards days are over, and many consumers feel that this new Netflix content just ain’t it.

 

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