Netflix’s new ad-supported tier will block access to certain content, potentially including original BBC productions.
The streaming giant’s co-CEO Ted Sarandos said in an earnings call this week that the new ad tier won’t have access to Netflix’s entire content library.
Sarandos was speaking after the announcement that Netflix had lost 970,000 subscribers in the second quarter of this year.
That’s nearly five times the amount lost in the first three months of the year, and a massive drop from the 8.3 million new subscribers added in Q4 2021.
Netflix announced earlier this year that it would be bringing commercials to Netflix for the first time. Netflix’s new ad-supported tier will be added to Netflix probably in early 2023 and will be cheaper than the other existing tiers – Basic, Standard and Premium. Now the streaming giant’s co-CEO says the new tier won’t have access to Netflix’s entire content library
Some shows made by Netflix in conjunction with the BBC – such as The Serpent and Dracula (pictured) – could be blocked from the new ad-supported tier
WHAT WE KNOW ABOUT NETFLIX’S NEW AD SUPPORTED LEVEL
Netflix revealed in April that it would be introducing ads for the first time.
It plans to launch an ad-supported tier around early 2023, starting with “the handful of markets with significant ad spend” – possibly the US and UK.
The tier will be cheaper than the cheapest existing tier (Basic; £6.99 per month). Unlike other ad-supported streaming services, it won’t be free.
Netflix is working with Microsoft to develop ads for the new tier.
“Today the vast majority of what people watch on Netflix we can include in the ad-supported tier,” Sarandos said.
“There are some things that aren’t working – which we’re discussing with the studios – but if we launched the product today, the members of the advertising level would have a great experience.
“We’re going to remove some additional content, but certainly not all, but we don’t think that’s a significant drag on the business.”
BBC-produced content could be excluded from the tier, as the BBC is not allowed to have advertisements supporting its programs due to licensing fees.
John McVay, chief executive of Pact, the UK producers’ trade body, told The Times that some shows made by Netflix in conjunction with the BBC – such as The Serpent and Dracula – could be blocked from the new ad-supported tier.
“If it’s an original BBC production, the BBC license funding cannot be ad-supported,” McVay said.
A BBC spokesperson told MailOnline it was “too early” to comment or confirm.
The California streaming giant plans to launch the new ad-supported tier around early 2023, starting in “the handful of markets with significant ad spend” – possibly the US and UK.
The new tier will be cheaper than the other existing tiers – Basic, Standard and Premium – but it won’t be free, meaning customers will have to endure ads in addition to paying a monthly subscription price.
It is hoped that a cheaper tier could help attract users who are on a budget, and in turn help Netflix reverse the recent drop in subscriber numbers.
Netflix added 8.3 million new subscribers in the fourth quarter of 2021. But in the two successive quarters it lost subscribers, not gained them
Jesse Cohen, senior analyst at Investing.com, predicts the new ad-supported tier will be a hit for Netflix and attract younger users.
Q2 2022: 970,000 lost
Q1 2022: 200,000 lost
Q4 2021: 8.3 million earned
Q3 2021: 4.4 million earned
Q2 2021: 1.5 million earned
“The launch of Netflix’s lower-cost, ad-supported version of the service should be the catalyst for growth the streaming giant has so badly needed in recent years,” Cohen told MailOnline.
“We expect advertisers looking to reach younger viewers who have moved away from traditional television will likely allocate more of their marketing dollars to advertising on Netflix in the future.”
Mike Proulx, vice president and research director at Forrester, said the new tier “will provide cost relief to its ad-tolerant users who are feeling the price pinch” and Attract new price-conscious users who have been reluctant to pay a premium price.
“Beyond additional subscriptions, the ads will also provide a benefit to Netflix in the form of a new revenue stream from brands keen to reach the platform’s addressable audience,” Proulx told MailOnline.
Netflix’s streaming rival Disney+ is also introducing an ad-supported subscription tier, likely later this year, though the price isn’t yet known.
The Serpent is a British crime drama commissioned by the BBC and is currently available on Netflix.
Disney+ has a slew of hugely popular and expansive content libraries, including Star Wars, Marvel and Disney movies, as well as The Simpsons and some exclusive series, including the eight-hour Beatles documentary.
Also on the earnings call this week, Netflix CEO Reed Hastings said traditional television will be “definitely” gone in “five to 10 years.”
If Hastings’ prediction is correct, the BBC and ITV will exist as on-demand streaming platforms, but not TV channels, by 2032.
“Looking to the future, streaming works everywhere,” Hastings said on the call. “Everyone is flocking.” It’s definitely the end of linear TV for the next 5-10 years.
Hastings also said on Tuesday that Netflix is ”very well set up for next year” and that key business drivers “continue to improve.”
Netflix expected to lose 2 million subscribers for the second quarter, so Tuesday’s results were nowhere near as bad as it had feared.
Hastings pointed to the success of Stranger Things as being responsible for sustaining subscribers in the quarter.
The fourth season of the sci-fi show – which is produced exclusively for Netflix – began airing in late May.
NETFLIX PRESENTS PLANS TO INTRODUCE ADS FOR THE FIRST TIME
In April 2022, Netflix CEO Reed Hastings revealed on a call that the platform would introduce profits in “the next year or two”.
Netflix had just revealed at the time that it had lost 200,000 subscribers in the first three months of the year, and that it expected to lose 2 million more in the second quarter.
The stock price fell significantly after the news, wiping around $70 billion off the company’s market capitalization.
Then in May, Netflix announced to its employees that it would introduce ads earlier than expected – by the end of the year, The New York Times revealed.
“Yes, it’s fast and ambitious and it will require trade-offs,” Netflix said in a memo to employees, seen by The New York Times.
“Every major streaming company except Apple has or has announced an ad-supported service. For good reason, people want cheaper options.
Company executives noted that HBO and Hulu have been able to “maintain strong brands while providing an ad-supported service.”
The news provoked a furious reaction from some users, who threatened to cancel their subscription if they had to endure advertisements.
Twitter user @UCantCensorThis posted: ‘Hey @netflix. I’m letting you know right now that if I EVER see a single ad interrupt anything I watch on your service, I’ll cancel faster than you can say “ad break”.
A survey of 2,922 UK consumers by mobile advertising platform LoopMe found that more than a third (36%) of UK consumers would cancel their Netflix subscription if it became ad-supported.
However, 34% said they would continue to subscribe if it meant they could pay less with ads.
Paolo Pescatore, an analyst at PP Foresight, suggested that to entice users to sign up and keep them engaged, the new ad-supported plan should be “somewhere between 25% and 50% less than what they pay today”. .
Jem Lloyd-Williams, CEO of media agency Mindshare UK, said for some the trade-off between saving money each month and watching adverts might prove appealing.
“As long as Netflix continues to invest in high-quality content, we believe it could be the right move at the right time for the streaming giant,” he said.
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