Netflix is set to launch a cheaper alternative for subscribers, releasing an ad-supported version ahead of its original schedule in 2023. Netflix is racing with competitor, Disney+ as it gears up to launch a cheaper, ad-supported plan on 8 December. Running head to head with Disney+ in a battle for subscribers, experts say Netflix will only be able to achieve sustained growth with realistic plans offered to subscribers.

The cheaper ad-supported plan is reported to roll out to a variety of countries including Australia, United States, France, Germany and Canada. But, with the cost margins of ads rising, what challenges can marketers expect?

Marketing magazine spoke to Sabri Suby, founder and head of growth at digital marketing giant, King Kong, expressing the release of a cheaper alternative Netflix plan is the “moment I – and like many other marketers – have been waiting for.”

“Right now, there is the biggest demand for content that has ever existed. Previously, Netflix was the number one dominant streaming platform and there wasn’t really anybody else to try and challenge that,” says Sabri.

But Suby says the introduction of Netflix ads is “an important new revenue stream to help them add to that war chest of being able to buy up more content.”

As the race continues between Disney+ and Netflix, Suby says “whoever has the best content, as a streaming platform, is the platform that is going to win. The content is the product.”

How will a Netflix ad-supported subscription elevate a user’s experience?

Users will be exposed to about four minutes of ads, for an estimated price of US$7 to $9. Similar to Amazon’s Prime Video, the ads for movies will run before the feature. Reportedly, Netflix will reject political, gambling and cryptocurrency advertising, promising to not market any products to appeal to children. They are also considering restrictions upon pharmaceutical advertising. 

Netflix co-founder and CEO, Reed Hastings said in April the proposed model would be a good option for those who are tolerant to advertising. 

“Those who have been following Netflix know that I have been against the complexity of advertising and a fan of the simplicity of subscription,” says Hastings.

“But I am a bigger fan of consumer choice – and allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense.”

There have been no signs of information about users being able to skip ads like Spotify. Netflix does not plan to allow users to skip ads or access any playback control features whilst streaming the ads. 

However, unlike industry ad standards, Netflix will set ‘frequency caps’ which will restrict how often an advertising ‘spot’ can be served to individual viewers. This means that individual ad spots will be delivered at a relatively low pace, at a rate of one per hour and three per day, per viewer. Another feature being introduced is that Netflix will only filter advertising based on which country the user is based.

A Netflix spokesperson said the company was still making decisions on how to launch. “We are still in the early days of deciding how to launch a lower priced, ad-supported option and no decisions have been made. This is all just speculation at this point,” the spokesperson said.  

Suby marks this as positive, explaining, “there is a huge group of individuals that have proven they would rather pay less or get something for free and tolerate the ads versus the people that would pay money and have it with no ads. It’s a smart move all around.”

Netflix loses more than a million subscribers in 2022

Netflix has reported to have lost about one million subscribers in the last quarter, which is a better than expected result as they forecasted a loss of two million subscribers. 

At the moment, Netflix has 222 million subscribers worldwide. But the biggest problem Netflix faces is password sharing. They have reported to have lost 30 million additional households using the service in North America alone. For years, Netflix has allowed the practice but will introduce a small fee to cover losses with password sharing.

Suby commented on the loss of subscribers with Netflix expressing that “one of the biggest needle movers that you can experiment with is price. There is a huge, price-sensitive area of the market.”

“Let’s take Spotify as a use case. The music streaming platform has 209 million active free users, and 172 million paying premium users.”

“There are way more people listening to music with ads in it. Spotify is generating 12 percent of its revenue from those ads. While it’s not the majority of their revenue, it would certainly be enough to make Netflix sit up and pay attention,” says Sabri.

Suby believes the desperation to use ads will bring in revenue for Netflix. 

“Because Netflix has shown a decline in users for the first time, one of the few ways they can unlock more growth is by subsidising Netflix accounts through advertising.”