Netflix, how do you like yours? Basic with ads please

Netflix as we learn the pros and cons of their strategy to roll out an advertising based subscription model.

As Netflix faces increased competition and revenue challenges, it has introduced a cheaper subscription plan with ads. Kateryna Novatska, head of marketing at Epom, delves into the changing CTV landscape, Netflix’s decision, and the implications for advertisers.

With a vast library of content and a user-friendly interface, Netflix remains the most popular streaming service in the United States. 

However, since 2021, the company has experienced a slight decrease in revenue and subscribers due to competition from other CTV players, such as Disney+, Hulu, and Amazon Prime. This is combined as well as the increasing price of its services. And although the company saw improved subscriber numbers by the end of 2022, its income continued to shrink. This has resulted in a 12% declineOpens a new window  from the previous year.

To counteract this, Netflix introduced several revisions, including the notable, cheaper subscription plan with ads late last year. However it’s too early to judge, but it appears that both brands and users like this approach. 

The State of CTV Ads 

The US has over 230 million CTVOpens a new window  users, constituting almost 68% of the population. And as these figures continue to rise, so does the number of allocated ad budgets. CTV ad spending in the US is expected to exceed $26 billion in 2023, a 27.2% increase from 2022.

Despite this growth, marketers still allocate more ad budgets for traditional linear TV as they perceive OTT , CTV as fragmented landscapes. However, US CTV ad spending is expected to surpass linear TV ad spending by the end of 2024 by 50.0%. This is especially interesting considering that in 2019 eMarketer forecasted that by 2024 CTV ad spending would be 1/10 of the linear.

Aside from the apparent benefits of CTV ads, such as reach, targeting, cookieless environments, precise measurements, and reporting, another advantage is their outstanding ad viewability: the global viewability rate of CTV ads stood at 93.2% in 2022. Adding to the success of CTV advertising, industry researchOpens a new window  by Magnite shows that 23% of viewers purchase after watching an ad.

Key CTV Players in the US

As well as creating engaging content, OTT services provide viewers with targeted ads. By 2023, subscription-based OTT video advertising spending will reach almost $10 billion, representing 3.4% of all digital advertising and 10.2% of all video advertising. 

The top subscription-based streaming services in US households are Netflix, Amazon Prime, Hulu, Disney+, and HBO Max. Netflix dominates with 74 million subscribers in the US and Canada and 230 million subscribers globally. 

Netflix also remains number one regarding actual CTV hours streamed, with a 29% share in Q1 of 2022, followed by YouTube with a 21% share and Hulu with a 12% share. While YouTube is not a subscription-based service, it is here to give context. LightShed said Hulu is second only to YouTube in terms of just ad-supported services.

In 2022, Hulu brought in about $3 billion in advertising revenue. Platforms like Pluto and Tubi, which offer subscription-free ads-only content, brought in only $1 billion. This gives a sense of Netflix’s prospects in this field. It is predicted to have a potential $4 billion-plusOpens a new window  advertising revenue opportunity in the US, thanks to a leading position in terms of hours spent on CTV viewing.

The Future of Netflix with Ads 

For a long time, Netflix maintained a strict ad-free policy, but due to increasing challenges and competition, Netflix combined the perks of both worlds, mixing ads with subscriptions. And it has more numbers to support this decision: 64% of CTV viewers prefer ads to more expensive subscriptions, not just for cost reasons but because data-driven CTV ads are relevant.

The ‘Basic with Ads’ plan comes at $6.99 plus up to 5 minutes of ads/hour and doesn’t have the download option. To compare, a Basic subscription plan costs $9.99, does not have ads, and lets you download programs. Currently, Netflix’s ‘Basic with Ads’ plan has been introduced in 12 countries, including the US, but the plan is to spread it across all markets.

As the top streaming service in the US, Netflix is a tidbit for brands. According to the company’s president of worldwide advertising, Jeremi Gorman, Netflix has seen “overwhelming interest” from hundreds of global advertisers and has nearly sold out its ad inventory for launch.

In the first month after introducing ‘Basic with Ads,’ about 9% of new subscribers, or 0.2% of total US subscribers, went for it. In January, it is said that these figures doubled. By the end of Q1, Netflix expects the subscribers for the ‘Basic with Ads’ plan to come to 1.75 millionOpens a new window . This will constitute around 2.5% of the total North American subscribers base. 

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