Tammy Parker, Principal Analyst at GlobalData, offers her view:
“Netflix is taking a measured approach to its new ad-supported video-on-demand (AVOD) service, with the US version priced at $6.99 per month, which is $3 less than the Basic tier with no ads, $8.50 less than its Standard tier, and $13 less than its top Premium tier.
By not unveiling a disruptively low price or a frustratingly stingy AVOD discount, Netflix keeps its investors happy and leaves itself room to adjust pricing in the future, depending, of course, upon what rivals do with their own price points.
“Netflix Basic with Ads will cost $1 less than the ad-supported tier of Hulu and the forthcoming Disney+ AVOD tier, each of which is priced at $7.99 per month.
Basic with Ads is also coming in at $3 per month less than HBO Max’s $9.99 ad-supported tier, which has been positioned as a premium entertainment viewing service.
However, Netflix’s AVOD launch price is $2 per month higher than either Paramount+ or Peacock’s AVOD tiers, which each cost $4.99 per month, reflecting Netflix’s belief that its rich inventory of TV series and films provides a more appealing viewing experience than those slightly lower-cost services.
“Netflix had announced in July that it would introduce AVOD in early 2023 but instead hastened to launch the new tier in November, grabbing marketing momentum and headlines for beating Disney+, which is launching its own AVOD tier on 8 December.
Additionally, with Netflix intending to release its Q3 earnings on 18 October, the company may have timed the news of its impending AVOD service to blunt any disappointing quarterly results.
The unveiling of Basic with Ads can help reassure investors that Netflix is making dynamic moves to reinvigorate subscriber growth despite a deteriorating macroeconomic environment.
In July, Netflix predicted it would gain paid net adds of more than 1 million during Q3 2022, a slowdown from the 4.4 million it added in Q3 2021.
“Netflix is sensibly taking a restrained approach to ad slots with an expected average of four to five minutes of ads per hour, and ads will only be 15-30 seconds in length in most markets.
However, ads will run during shows and films, which some viewers may find disruptive, especially if they have previously subscribed to Netflix and are used to viewing its content with no advertising.
Nonetheless, as the cost of living continues escalating, budget-conscious consumers seeking a less expensive Netflix tier will gladly accept ads intruding on their viewing experience in exchange for a lower monthly subscription cost.
“Netflix said it has nearly sold out of its initial inventory of ad slots for the global launch, which is not at all surprising given that advertisers are increasingly interested in connected TV services as the TV viewing audience, particularly younger viewers that eschew linear TV, gravitates to streaming services.”