Netflix, after years of insisting it would stick solely to subscription-only plans, is finally open to offering lower-cost, ad-supported packages, co-CEO Reed Hastings said on the company’s Q1 earnings interview.
The company expects to nail down its ad-supported streaming strategy over the next year or two, Hastings said, “but think of us as quite open to us offering even lower prices with advertising as a consumer choice.”
Hastings’ comments about Netflix planning to intro an ad-supported plan come as the company’s subscriber growth has hit a wall — in fact, Netflix lost 200,000 subs in the first three months of 2022 and expects to drop 2 million in Q2. Adding ad-supported options could give it a new pathway to growth; in addition, to boost the top line, Netflix is looking at ways to collect money from the estimated 100 million-plus households that currently use a shared password to stream without paying for it.
“Those that have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” Hastings said. “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 get what they want, makes a lot of sense.”
Hastings didn’t provide details on what Netflix’s ad-supported plans might cost. The streamer’s standard two-stream HD plan costs $15.49 per month in the U.S.
Several of Netflix’s biggest competitors offer cheaper, ad-supported plans, including Hulu, HBO Max, NBCUniversal’s Peacock and Paramount+. Last month Disney announced plans to launch an ad-supported Disney+ plan starting late in 2022 in the U.S.
“I don’t think we have a lot of doubt that [the ad model] works,” Hastings said, citing Hulu and HBO Max as well as the upcoming plans from Disney+. “I’m sure we’ll just get in and figure it out — as opposed to test it and maybe do it or not do it.”
With its advertising play, Netflix can avoid wading into data-privacy pitfalls that have become problematic for some internet companies by using third-party technologies that match ads with viewers without needing access to personally identifiable information, Hastings said.
Last month, Netflix CFO Spencer Neumann signaled the streamer’s willingness to consider adopting an ad-supported tier. “It’s not like we have religion against advertising, to be clear,” Neumann said at a Morgan Stanley investment conference. While “that’s not something that’s in our plans right now,” he said, “never say never.”