The $6.99 cost for the Ad-Supported Streaming plan is $3 less than Netflix’s lowest-priced tier without commercials. The new option will roll out in 12 countries including the United States, Brazil, Germany, Japan and Korea, over 10 days.
Subscribers to the plan will see roughly four to five minutes of advertising per hour, Netflix said. Newly released films will have limited advertising to preserve the cinematic experience.
About 5% to 10% of Netflix’s programming will not be available on the Ad-Supported Streaming alternative because of licensing restrictions, Netflix Chief Operating Officer Greg Peters told reporters.
Shares of Netflix were up 5.4% at $232.86 in late afternoon trading. The company’s stock had fallen 62% this year before Thursday’s announcement.
Netflix executives had adamantly opposed adding commercials to their service for years. They announced a change of heart in April when the company stunned Wall Street by shedding subscribers in the first quarter and predicting additional defections.
“We at Netflix have a huge opportunity ahead to grow our unit and to attract more subscribers. And part of that is having a wide range of pricing plans,” Peters said on Thursday.
Peters declined to estimate how many customers would sign up for the Ad-Supported Streaming plan or how much additional revenue Netflix might generate. The company will provide forecasts for the fourth quarter when it releases earnings on Tuesday.
Cowen & Co analyst John Blackledge, in a research note, said the addition of advertising offered a “significant opportunity to unlock member growth” among price-sensitive audiences.
He pointed to a Wall Street Journal report that Netflix had set a goal of 13.3 million ad-supported viewers in the United States by the third quarter of 2023.
Other streaming services including Walt Disney’s Hulu and Disney+ and Warner Bros Discovery’s HBO Max already have, or plan to offer, ad-supported options that cost less. Those services charge between $8 and $10 per month for plans with commercials.
Netflix, known for hits such as “Stranger Things” and “Squid Game,” reported 220.7 million paying subscribers as of June, down nearly 1.2 million from the start of the year. The company projected it would add 1 million customers in the third quarter.
The ad-supported plan from Netflix will debut in Canada and Mexico on Nov. 1, and in the United States, Brazil, United Kingdom, France, Italy, Germany, Australia, Korea and Japan on Nov 3.
Spain will follow a week later on Nov. 10.
“They’re very well positioned because they’re a premium brand and marketers are extremely interested in being aligned with quality content,” said Greg Kahn, a former ad industry executive who now runs a media advisory firm.
Kahn predicted the new ad-supported service would likely cause some price-sensitive subscribers to opt for the cheaper tier, but added, “There’s much more potential in gaining revenue and gaining a new subscriber base.”
Jeremi Gorman, Netflix’s president of worldwide advertising, said Netflix nearly sold out its ad inventory for the launch of the new tier, attracting interest from automakers, consumer packaged goods companies and luxury brands.
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Advertisers can target viewers by country or genre, or run commercials on the service’s top 10 shows. Brands also can exclude ads from content featuring graphic violence, sex or nudity, Gorman said. Netflix also is introducing third-party verification to confirm ad impressions and traffic. Ratings agency Nielsen will also provide audience measurement, starting next year.
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