True Value of Netflix’s Ad-Supported Plan is Not in Attracting Subscribers, but in Retaining Them
There’s been plenty of news surrounding Netflix’s Basic with Ads plan lately, and nearly all of it has been bad. The price tier has been slow to attract new users since it launched in November 2022; only 12% of domestic subscribers who signed up since the plan launched have picked it.
Despite those issues, Netflix executives are optimistic about the future of the ad-supported tier. The company certainly has reasons for optimism in general, as its recent fourth-quarter earnings report revealed Netflix gained over 7.5 million subscribers at the end of 2022, jumping to 230.75M global users.
At first glance, the early numbers seem to indicate the confidence of Netflix execs is overblown. After all, most of Netflix’s Q4 subscriber growth came in regions where the Basic with Ads plan is not widely available yet. But a deeper look shows that the true value of Netflix’s ad-supported tier is not in driving new sign-ups, but rather in retaining customers that might otherwise churn away from the service.
For one thing, simply having the choice of an ad-supported plan will keep users around. A survey from December found that streaming services that offer users the choice of ad-free or ad-supported streaming retain 63% of users, whereas streamers that only offer ad-free streaming keep fewer than 60% of their users for the long haul. Users are more likely to stick with a service if they can pay a little less for it and continue accessing their favorite shows and movies in exchange for some ads.
Unique content is another key to retaining users. Another December study found that 65% of ad-supported video-on-demand users said they used a service because it offered shows and movies they couldn’t find anywhere else.
Netflix has a vast library full of originals, and that library is expanding daily, particularly with content made outside the United States. Less than 50% of Netflix's current catalog is American-made, and those shows are clearly bringing in new users, as the company is seeing its biggest subscriber growth in Europe, the Middle East, Africa, and Asia. Once Netflix begins offering its Basic with Ads plan more widely in these areas, the lower price point will enable the company to more easily retain the millions of users these shows have brought in.
Finally, there is the question of value as it relates to cost to consumers. The Basic with Ads plan on Netflix costs $6.99 per month, cheaper than the ad-supported plans of Disney+ and Hulu (both $7.99), as well as HBO Max ($9.99). The only major services with less expensive AVOD tiers in the U.S. are Peacock and Paramount+ (both $4.99), but neither service can come close to offering the wide variety of shows and movies that Netflix boasts.
It’s true, Netflix still has plenty of work to do in order to improve Basic with Ads. The service still has to iron out agreements with some studios regarding shares of ad revenues in order to get their content onto the tier, for example. But uninspiring initial subscription numbers bely the true value of Basic with Ads; not as a driver of subscriptions, but as a tool for retaining already-subscribed users.
Netflix
Netflix is a subscription video streaming service that includes on-demand access to 3,000+ movies, 2,000+ TV Shows, and Netflix Originals like Stranger Things, Squid Game, The Crown, Tiger King, and Bridgerton. They are constantly adding new shows and movies. Some of their Academy Award-winning exclusives include Roma, Marriage Story, Mank, and Ma Rainey’s Black Bottom.