Netflix (NFLX -0.38%) is hurrying to launch its new, lower-cost, ad-supported subscription tier -- and it is now intending to debut the plan on Nov. 1 rather than its previous target date of early 2023.
Because Disney (DIS) is planning to launch its own ad-supported plan in December, Netflix is desperate to get ahead of its rival with advertisers, telling them to submit bids this week.
The plan, though, might not be the hit with subscribers that Netflix believes. There's a reason the streamer has been loathe to include ads on its platform before now, and their introduction might not help Netflix stanch the subscriber losses that have put it behind Disney. Ads could, in fact, accelerate those losses, which could cause Netflix stock to tumble further.
Dipping a tentative toe into the ad market
Netflix is reportedly planning to offer the ad-supported tier at somewhere between $7 and $9, or about half the price of its current standard plan, with the launch expected in the U.S., Canada, the U.K., France, and Germany.
Yet it's a timid introduction, because the streamer is placing limits on how many ads will run every hour and how often any ad can be seen by a viewer in a day, and Netflix will prevent any ad from being targeted to viewers based on demographics, geography, or viewing behavior. Basically, everyone will see the same ads at the same time.
According to reports, there will be just four minutes of advertising every hour, which is on par with or less than what other streaming services put up but dramatically fewer than the 10 minutes to 20 minutes shown on cable-TV channels. But that still might be too much.
A costly plan of attack
Despite suddenly pushing up the deadline, Netflix is obviously worried about the impact that showing ads will have on viewers. Viewers cut the cable cord to get away from advertising, but ads are making a comeback.
There are certainly many free-to-view streaming channels that are fully supported by advertising; the latest trend has been to charge subscribers to watch ads, often with the oldest, least desirable content. Netflix is walking a fine line of angering consumers who wanted to escape advertising but is offering a cheaper alternative to boost both revenue and its subscriber base.
For streamers, the allure of advertising is hard to shake; they can make more money from ads than from subscriptions alone. Netflix, which has partnered with Microsoft to handle the ad business, is reportedly asking advertisers to pay a premium to reach its audience, upward of $65 CPM, or cost per thousand viewers -- well above the industry standard of about $20 CPM. Netflix also wants advertisers to commit to a minimum of $10 million in annual ad spending.
Yet, because it's one of the few remaining media companies without ads, introducing them even on a limited basis could backfire, since Netflix has also experienced growing complaints about the quality of the content on its platform. Ads could be seen as further evidence of a deteriorating viewing experience.
Fearful of the plan going awry
Netflix obviously realizes advertising around its shows could be a problem, and it wants to avoid the issues some other channels have encountered. Hulu, for example, is criticized for blasting the same ads over and over again. And Alphabet's YouTube has become almost unwatchable because it bombards viewers with so many ads in an effort to drive them toward its premium channel.
Netflix also has a problem on the advertiser side in that a looming recession means it could be launching an ad-supported tier just as spending cutbacks cause ad agencies to tighten their belts. It might also have to renegotiate its rights to licensed shows to run ads during them, which could come at a high cost.
Viewers, though, could be the real roadblock, and ads might undercut the company's growth plans if they fail to attract new viewers while causing current subscribers to downgrade to the new, cheaper tier. Another subscriber miss could see Netflix stock get wiped out again.