Alright, it's official: Netflix (NFLX 0.91%) is launching its ad-supported video-streaming plan on November 3, 2022. The company also shared some crucial information about the new subscription service. Here's what we know so far.
The basics of the Basic With Ads plan
The Basic With Ads subscription plan offers a slightly limited content catalog at the modest 720p bottom-rung high-definition image quality. It will cost you $7 per month, down from $10 for the ad-free Basic option.
In return, Netflix will insert four to five minutes of video ads per hour of viewing, placed at the start of every show or movie and during longer pieces of content. Furthermore, the ad-based plan cannot download content to your device.
Third-party resellers who bundle or resell Netflix services may or may not offer the Basic With Ads alternative.
That's a full rundown of the differences between the currently lowest-end Netflix plan and the upcoming ad-supported choice. Ad-based subscribers will still get full access to Netflix's mobile games.
The higher-end options aren't affected by the ad-based service introduction. The Standard and Premium subscriptions remain in place with higher-quality video, a larger number of supported devices per subscriber, and higher monthly fees.
For the eagle-eyed Netflix viewers out there, Basic With Ads isn't getting better video quality than the ad-free Basic service. Concurrent with the ad-based launch, Netflix is also boosting the lowest available quality from standard definition (480p) to 720p for the Basic plan.
NASDAQ: NFLX
Key Data Points
Market-by-market variations
The initial launch will land in 12 countries. The features and limitations of the advertising plan are consistent across these markets, but the effective discount varies from one country to the next.
Japanese subscribers will only save 20%, compared to the Basic service, and the discount stops at 27% in Brazil. Canada and South Korea will enjoy the largest price breaks of 40% and 42%, respectively.
Converted into American dollars at current exchange rates, the lowest-priced Netflix service on the planet will be the ad-supported version in Brazil. This plan clocks in at just $3.59 per month, just below South Korea's $3.84 per month.
It's unclear why one country qualifies for a deeper advertising discount than another, but I assume it's related to the availability of ad-space buyers in each market.
These details are not etched in granite
Netflix will undoubtedly provide more detail on its advertising plans in its third-quarter earnings report on October 18. Stay tuned for that event.
Things will certainly change over time. Netflix plans to expand this offering to more countries, pending negotiations with content producers and advertisers in each market. The content catalogs will also evolve, as Netflix must amend its license agreements with third-party producers to allow the productions covered by each deal to be shown alongside advertising spots.
Will advertising help or hurt Netflix?
You know what Netflix says in its long-term strategy overview: "Netflix is a focused passion brand, not a do-everything brand: Starbucks, not 7-Eleven; Southwest, not United; HBO, not Dish."
The ad-based service flies in the face of that philosophy. It's a large-scale fishing net designed to collect lots of lower-quality subscribers, not a targeted passion play for highly committed members with deeper pockets.
Netflix will most likely get its subscriber numbers back on a growing trajectory after a disappointing trend in 2022. On the other hand, the lower-cost plans may also inspire some current users to downgrade from their pricier plans, thus lowering Netflix's average revenue per subscriber.
This is a balancing act that I'm not entirely comfortable with. I expect Netflix to adjust its pricing as it learns where it needs to draw the line between scooping up more users and supporting the money-making value of each media-streaming subscriber. I still think the company should never have embarked on this tricky project since it dilutes Netflix's premium-quality brand.
I hope I'm wrong and that Netflix will supercharge its revenue growth without undermining its profit margins, but I'm not convinced. In my eyes, this still looks like a big mistake.
So good luck with this experiment, Netflix. I'm afraid you might need it.
