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Netflix, after years of insisting it wouldn’t dive into the advertising business, threw its hat into the ring last month with the launch of an ad-supported plan, priced 30% less than its previous least-expensive package.

But at least initially, independent research suggests Netflix’s Basic With Ads plan is getting a relatively cool reception. In November, about 9% of Netflix’s U.S. subscriber sign-ups were for the $6.99/month ad-supported package, making it the least popular among its plan options, according to an analysis released this week by research firm Antenna. By comparison, when HBO Max launched its ad-supported option in June 2021, 15% of the streamer’s U.S. sign-ups that month were for HBO Max With Ads.

In addition, Antenna found that 0.2% of existing HBO Max’s U.S. subscribers switched to the ad-supported plan in June 2021, compared with 0.1% for existing Netflix users in November 2022. The firm noted that HBO Max With Ads plan did pick up steam, accounting for up to nearly one-third of sign-ups in its first year, and that today about 21% of HBO Max subscribers are on the ad-supported plan.

Why is Netflix’s ad tier seemingly having a slow liftoff? One reason could be that the plan has several notable restrictions compared with Netflix’s ad-free offerings. Netflix Basic With Ads excludes some popular TV series and movies, including “House of Cards,” “New Girl” and “The Good Place,” for which Netflix does not currently have rights to serve advertising. (Netflix says 5%-10% of total titles are unavailable in the ad tier, depending on market.) In addition, subscribers on the ad-supported plan, which serves up about 4-5 minutes of commercials per hour of content, can’t download titles for offline viewing. The service also is limited to a single 720p HD stream at a time (as is the case for Netflix Basic without ads).

According to Netflix, Antenna’s data is not accurate, although Netflix did not provide its own sign-up figures for the ad plan. The company is scheduled to report fourth-quarter 2022 results on Jan. 19.

“It’s still very early days for our ad-supported tier and we’re pleased with its launch and engagement, as well as the eagerness of advertisers to partner with Netflix,” a Netflix rep said in a statement. The company has not issued guidance on how many subs it expects to take the ad tier, but the company told investors that Netflix Basic With Ads will not represent a “material” contribution to Q4 earnings.

Antenna’s estimates are based on data from “a variety of data-collection partners” derived from online purchase receipts; credit, debit and banking data; and “bill-scrape data.”

In another indication Netflix’s ad tier may be underperforming, the company fell short on viewership guarantees it made to ad buyers in the first few weeks (in some cases delivering around 80% of targets) and has issued refunds to some clients, trade publication Digiday reported last week, citing anonymous ad-agency execs. Netflix declined to comment on the report.

Netflix Basic With Ads launched in the U.S. on Nov. 3 at $6.99 per month (30% less than the the regular Basic plan without ads, at $9.99 per month). The ad-supported package is available in 12 countries: Australia, Brazil, Canada, France, Germany, Italy, Japan, Mexico, South Korea, Spain, the U.K. and the U.S.

Wall Street analysts generally have continued to be upbeat on the long-term potential for Netflix’s ad plan. Cowen’s John Blackledge, in a Dec. 9 research note, identified Netflix as the firm’s top large-cap stock pick for 2023, citing the ad-supported launch as a key growth driver. “We view NFLX as the best ‘recession play’ in our coverage universe if macro conditions worsen, particularly as the ad tier is attractive for value-conscious consumers,” Blackledge wrote.

Alongside the advertising-supported service, Blackledge cited Netflix’s paid sharing solution — aimed at users who share their accounts passwords — as likely to boost revenue per member. Netflix has estimated that passwords are being shared in violation of its rules with more than 100 million non-paying households worldwide. In early 2023, Netflix plans to roll out “a thoughtful approach to monetize account sharing,” the company said in its Q3 shareholder letter, which will let password-sharers create sub-accounts (to add “Extra Members”) if they want to pay for family or friends.

There remains strong consumer demand for less expensive, ad-supported streaming plans. According to survey conducted last month by Hub Entertainment Research, 57% of U.S. consumers said they would rather watch ads and pay $4-$5 less per month for a streaming service, a level of interest that has remained relatively stable over the past year.

Meanwhile, according to the Hub study, 24% of current Netflix subscribers and 35% of current subs to Disney+ — which bowed its own tier with ads on Dec. 8 — expect to switch to the new ad-supported options. The data is from Hub’s “TV Advertising: Fact vs. Fiction” study, which surveyed 3,001 U.S. consumers aged 14-74 in November 2022 who watch at least one hour of TV per week.

“Consumers have demonstrated that, with the right pricing and packaging, they will opt-in to ad-supported video services,” Antenna CEO Jonathan Carson wrote in a blog post on its research. What remains to be seen is whether Netflix’s ad play gains momentum next year — or whether the streamer will modify the package to boost its uptake.

Netflix co-CEO Reed Hastings, at the New York Times’ DealBook Summit last month, conceded that “I wish we had flipped a few years earlier” on introducing an ad-supported service. But, he added optmistically, “we’ll catch up and in a couple of years we won’t remember when we started it.”

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