Netflix Could Raise the Price of Ad-Supported Plan, But Company ‘Loves’ Lower Entry Cost
Netflix Could Raise the Price of Ad-Supported Plan, But Company ‘Loves’ Lower Entry Cost
While discussing Netflix’s second quarter earnings, co-CEO Greg Peters gave a carefully balanced answer about the price of the Standard with Ads plan.
The Netflix Standard with Ads plan has been a bit slow on the come-up. Since its launch in November 2022, it has consistently lagged behind the ad-supported plan on Disney+, which launched just weeks later, as well as similar plans from other competitors in terms of the percentage of new customers who opt for the ad-supported plan. To convince customers to give the plan a chance, Netflix has kept the price low at just $6.99 per month. But as password-sharing restrictions have driven more customers to choose the ad-supported option, is the company about to raise the price? Co-CEO Greg Peters was asked that question during the company’s second-quarter earnings call on Thursday, and his response could become the new definition of a non-answer.
Key Details:
- Peters said Netflix executives “love” that Standard with Ads has a low entry price.
- He also said Netflix thinks similarly about raising prices for ad-supported and ad-free plans.
- Once Paramount+ raises its price in August, Netflix will have the lowest-priced ad plan on the market.
Peters was asked if he planned to raise prices on the Standard with Ads plan because currently, it brings in a lower average revenue per member (ARM) than the ad-free plans do. The industry’s conventional wisdom dictates that ad-supported streaming plans are supposed to bring in higher ARM, because they collect both ad revenue and subscription revenue. Peters explained that Netflix’s ad tier was still filling advertising inventory, which explained the revenue lag. He suggested that as the company continued to make deals with advertisers, the plan’s ARM would make up the gap between it and the ad-free plans. A survey from May found that Netflix wasn’t even in the top seven streaming services delivering ads to audiences in the first quarter of 2024.
However, Peters did not go so far as to say a lower ARM meant that the company would try to boost revenue for the ad tier by raising its subscription price.
“We love having an entry price that’s lower. That means we are more accessible for more people,” Peters said. “In our ads markets, that’s a great thing because they get access to all the amazing storytelling that we are doing there. But in terms of raising that price, we think about it similar to how we think about pricing in general, which is, you know, where it’s our job to increase the value that we are delivering all of our members.”
At first glance, that may seem to indicate that Peters doesn’t want to raise the price of the Standard with Ads plan. But as he continued, his answer left the door open for the company to increase the cost of an ad-supported subscription at the same time that it raises prices for its other streaming plans, so long as it compensates by continuing to add more content.
“We’ve got more amazing films, more series, the live events that are coming, more games,” Peters continued. “And when we have signals from our members, this is, you know, the amount of acquisition that we’ve got going on, engagement, what our retention and churn looks like, then we find the right moment to ask our members to pay a bit more to keep that flywheel spinning. And we’ll think about that in the ads context just like we would in the non-ads context.”
Obviously, at some point in the future, Netflix is going to raise the price of its ad-supported plan, the question just becomes when. From those words, a price increase for the Standard with Ads plan is clearly not off the table in the relatively near future. The content additions that Peters mentioned as a precursor to any price hike are coming fast and furious, particularly in the live events category.
Netflix is hosting a live comedy special from controversial podcaster Joe Rogan this summer, and will also air a hotdog eating grudge match in September, and a live boxing match between Jake Paul and Mike Tyson in November, ahead of its Christmas Day streams of two live NFL games.
So, When Is Netflix Going to Raise the Price of Standard With Ads?
Ultimately, I think the price of Standard with Ads will increase in the next year, but only by $1 or $2 per month. Netflix has tried multiple strategies to drive more customers to the plan, including its password-sharing crackdown, and trying to nudge people off ad-free plans by raising their monthly costs. The company is even ditching its cheapest ad-free plan for existing subscribers in the United States and elsewhere, forcing viewers with that plan to choose another or cancel their subscription.
These strategies are starting to pay off, as Netflix revealed in its latest earnings report that it had seen a 34% quarter-over-quarter growth in ad-tier subscribers. Given the increase in adoptions of the ad plan, I think that Netflix will take the opportunity to nudge the price upward a little in the next several months, if for no other reason than to keep pace with the competition.
The Standard with Ads plan will become the cheapest major ad-supported streaming tier in August, when Paramount+ is set to raise the price of its ad plan from $5.99 per month to $7.99. Peacock made the same price adjustment for its ad tier earlier this week, and Disney+ has been selling its ad plan at $7.99 since December 2022, the same price as Hulu’s. Prime Video is charging $8.99 for its plan with commercials, and Max is ahead of them all at $9.99 per month.
Those are the top reasons I think Netflix will roll out a price increase for its Standard with Ads plan in the coming months, perhaps in November to “celebrate” two years on the market. The plan has lured enough subscribers with its low price point, and the cost increases around the industry are giving Netflix plenty of cover, particularly as it continues to add more premium content and live events.
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.