The lower price point in Netflix’s new advertising-supported subscription tier is driving “incremental membership growth”.
And the streaming platform says the move to an advertising model has seen little cannabalisation. Few subscribers are switching from higher priced tiers.
Netflix, in a quarterly trading update, says it is pleased with progress, including value to advertisers.
Analysts believe Netflix’s profit will be improved by having advertising. However, the company says the impact on profit will be modest initially.
The advertising-supported version of Netflix starts from $6.99 a month in Australia, $4 a month lower than Netflix's basic plan of $10.99.
Ads are 15 or 30 seconds in length and play before and during shows and movies.
Netflix says it added 7.7 million net new subscribers in the December quarter, ahead of its own forecast of 4.5 million, bringing its subscriber base to 230.8 million.
Reed Hastings, who turned a DVD service into a global content streaming giant, is stepping down as CEO to become executive chairman. COO Greg Peters becomes co-CEO with Ted Sarandos.
The company’s update on the ad-supported tier:
“In November, we successfully launched our new, lower priced ad-supported plan in 12 countries,” the company says in its quarterly trading update.
“We believe branded television advertising is a substantial long term incremental revenue and profit opportunity for Netflix, and our ability to stand up this business in six months underscores our commitment both to give members more choice and to reaccelerate our growth.
“While it’s still early days for ads and we have lots to do (in particular better targeting and measurement), we are pleased with our progress to date across every dimension: member experience, value to advertisers, and incremental contribution to our business.
“Engagement, which is consistent with members on comparable ad-free plans, is better than what we had expected and we believe the lower price point is driving incremental membership growth.
“Also, as expected, we’ve seen very little switching from other plans. Overall the reaction to this launch from both consumers and advertisers has confirmed our belief that our ad-supported plan has strong unit economics (at minimum, in-line with or better than the comparable ad-free plan) and will generate incremental revenue and profit, though the impact on 2023 will be modest given that this will build slowly over time.”
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