New details have emerged this week about the OTT giant’s upcoming ad-supported tier, including its potential price and first markets, prompting analysts to predict just how positive the new bet will be for the platform.
In April of this year, following the revelation of the loss of 200,000 subscribers during Q1 2022, Netflix unveiled it was working on an AVOD version of its service.
Then in June, the OTT giant officially confirmed the launch of the new tier, which would be launched this very year and serve those customers who wish to pay less in exchange for watching ads, without changing its current SVOD plans.
The following month, the company announced it was partnering with Microsoft to launch its AVOD version and that it was already in negotiations with several content giants and Hollywood studios to get authorization to include ads in their titles.
And now, it has been revealed that the new ad-supported version of Netflix would cost between US$ 7 and US$ 9 a month, half of what its current most-popular plan costs (US$ 15,49) in the US.
The news was revealed by Bloomberg, which added Netflix is planning to sell around four minutes of ads per hour of content and that the ads will only be included before or during the titles, not after.
According to the news outlet, Netflix’s new AVOD version will launch in the last quarter of this year in about six markets to start with.
So how much does the OTT giant stand to win with this new launch? According to a new report from Ampere Analysis, Netflix’s global advertising income will rise to US$5.5 billion by 2027, with US$1.7 billion coming from the U.S. market, the most from any individual country. With subscriber totals in flux, Ampere believes that this will generate US$2.2 billion more in revenue for Netflix in 2027 than the company would make if it continued without ads.
“Specifically, the ad tier is expected to increase the group’s revenue by 4.9% in 2023 and 7.1% by 2027 compared to the current business model,” Ampere analyst Ben French said.
Ampere also predicted that one in five Netflix users will be on the ad tier by that year. “The ad tier is primarily a customer retention tool in the US, with sign-ups coming largely from Netflix’s existing subscriber base. The US ad tier will be an effective measure against a shrinking and less engaged audience rather than a new customer acquisition tool. Increasing advertising rates will grow total ad income over time, offsetting the negative impact of a fall in viewing.”
In this context, the new ad tier would act as a tool attract new customers, but mostly retain those thinking of canceling their current subscription due to the increase in competition and offers available in the market.
It will also pose a new opportunity for advertisers to reach audiences who have left pay TV in mass to move onto OTT options, creating a very marketable platform for their ads.
All that’s left to see now is exactly how Netflix’s offer will differ from those already established in the AVOD market, such as Hulu, HBO Max, Peacock or Paramount+, as well as Disney+, which will also start to offer its own ad tier in the US by the end of 2022.