29 August 2023
The platform which was once known for its advertising-free zone, has now shifted to a new lower-price ad-supported subscription. So why did Netflix add advertising to their business model and what does it look like now?
The original plan for Netflix’s ad strategy was to introduce a new lower-priced ad-supported subscription plan for their consumers, for £4.99. This is an extension to their existing ads-free basic, standard and premium plans. This is called “standard ads. This means users will have the option of a cheaper ad-supported plan with commercial ads and the option to not switch and keep their premium but more expensive plan.
Netflix states that there is room for increased revenue and growth. Netflix is seeking ways to reach both a new audience and maximise revenues from each user, ads are one way that this can be achieved. Besides the need for higher revenue, statistics show acquisition growth and competition are not favouring Netflix, pushing the need for a new source of revenue. This could be a successful move for Netflix due to its 5 million users.
Microsoft acts as the backbone of Netflix commercials. With competitor Disney launching a similar ad service, Netflix had to seek out a partner. Due to Netflix’s lack of Ad tech experience, they had no other choice but to go ahead with a partnership rather than building the technology themselves. Microsoft is already viewed as reliable and has proven its ability to support advertising needs. Netflix stated, “More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members”. Netflix selected Microsoft as a partnership making it a global technology and sales partner.
Unlike before, Netflix's new ad-supported subscription means that commercial advertisements will now be shown before or during shows and movies that Netflix has acquired commercial rights for, this makes up 90-95% of the movies and shows on there. These commercials last around 15-30 seconds, and there could be up to 5 Minutes’ worth of ads per hour. Due to this new subscription, users can now make use of the service for a fraction of the cost. At only £4.99, they can watch all their favourite shows!
// What does this mean for advertisers?
Netflix is in talks to create its own ad tech. From Netflix’s perspective performance TV is in the future, and adding to the television advertising wave is a way to keep Netflix relevant and successful.
This development holds advantages not only for Netflix but also unveils numerous prospects for advertisers. These prospects include:
Netflix remains in the top numbers in the industry. Its popularity can bring many benefits for ads, especially those ads placed alongside top charting shows.
Netflix’s new lower-priced ad-supported subscription could already be making changes.
It seems now that Netflix may be having second thoughts and could be considering alternative options on how operations are managed. Ad techs have been discussing the possibility that Netflix is exploring options to build its ad own server (in-house), reducing Netflix’s dependency on Microsoft’s expertise. Although this partnership is said to last 2 years, meaning it would be renewed in 2024.
Another alternative for Netflix is to purchase ad tech assets. However, any server that Netflix would consider building would involve a lot of customization and tailoring.
If Netflix decides to part from the Microsoft partnership and go out alone, they will have to act fast.
If Netflix decides to part from the Microsoft partnership and go out alone, they will have to act fast. With all these changes happening to the streaming networks, would you consider advertising on Netflix in the future? Reach out and contact our experts to discuss the best channel mix for you!