Netflix Inc. NFLX-Q will launch its new ad-supported tier in November in Canada and 11 other countries as it fights for fresh eyeballs in the crowded streaming market it helped establish.
The service will cost $5.99 a month and show viewers four to five minutes’ worth of ads each hour, opening up a new revenue stream for the streamer on top of its basic $9.99 plan, HD-enabled $16.49 plan and Ultra-HD $20.99 plan.
Since Netflix paved the way for on-demand TV and movie streaming a decade ago, competitor and specialty streamers such as Amazon Prime Video and Disney+ have commandeered a growing amount of viewers’ dollars and attention. Netflix is launching the long-predicted advertising tier after it revealed in July that it had lost about a million of its nearly 220 million paid users in a single quarter.
The price level is half that of Disney+’s ad-free offering in Canada. But Netflix’s Nov. 1 Canadian launch gets ahead of Disney’s own plan to launch an ad-supported tier in December – though it is not yet clear if the cartoon, Marvel and Star Wars streaming behemoth will immediately make its ad-supported tier available here. Walt Disney Co. is a leading Netflix competitor, with 221 million subscriptions worldwide – a figure very close to Netflix’s, but divided among numerous streaming networks including Hulu and ESPN+.
Just how much more Netflix can grow, however, is unclear. Kaan Yigit, of the consumer research firm Solutions Research Group, estimates Netflix has about 8.5 million Canadian users. At best, that number may grow by about 10 per cent, Mr. Yigit said.
But the new tier, he believes, could offer two benefits for the company. In this era of high inflation, a lower-priced product gives Netflix a greater chance to survive culls in consumers’ entertainment budgets. And, Mr. Yigit said, “it’s really opening up the entire world of video advertising revenue” to Netflix, giving it a chance to bite into a multibillion-dollar market.
That may be crucial in the competitive streaming sector. Though Netflix’s revenue has risen in each of the past four quarters, its profit growth has been less consistent, even as the US$1.441-billion it reported in the second quarter of 2022 was up 6.5 per cent year over year.
Netflix executives said the new tier took six months to develop and will feature 15- and 30-second ads before and during shows and movies. They framed the announcement in a conference call as a boon to potential advertisers, who will be able to target viewers by specific television and film genres – and eventually, they said, based on the age and gender demographics.
“This is a chance to reach a diverse, highly engaged audience, including younger viewers who increasingly aren’t watching linear TV,” said Jeremi Gorman, Netflix’s new president of worldwide advertising.
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It will not be a seamless rollout, however. Because of broadcast terms in licensing deals Netflix has with various studios and distributors, the company estimates about 5 per cent to 10 per cent of content will not be immediately available for users of the lower-cost advertising tier.
Asked by The Globe and Mail if Netflix would share internal projections for how the new offering would boost its revenue and membership, chief operating officer Greg Peters declined to provide them immediately. But he said a forecast would be available when the company releases its quarterly financial report later this month.
“We definitely believe that a lower consumer-facing price with good incremental ads monetization will enable us to both grow membership and, over time, build a really significant incremental revenue and profit stream,” Mr. Peters said.
The new Netflix tier is also nearly a quarter of Crave’s $19.99 full-service price tag – which features HBO and Showtime titles – but is the same amount as Apple TV+’s ad-free service. Amazon’s Prime Video service costs Canadians $9.99 a month, and also includes expedited shipping deals.
Netflix said it would not share data it collects on users, adding that data would only be used to help target ads on the platform, and not be used to build consumer profiles or sold for ad targeting elsewhere. Executives said it would work with partners, DoubleVerify and Integral Ad Science, to ensure advertisers that viewership metrics were genuine and not generated falsely, such as by bots.
Mr. Peters said its teams worked to ensure that ads appearing in the middle of TV shows and movies appear at “natural break points” to be “least obtrusive” to the viewing experience.