There’s a veritable advertising revolution going on at Netflix. The streamer, which for years resisted the addition of ads to any of its streaming plans, has done a complete turnaround, and in a letter to shareholders this week Netflix touted its Standard with Ads plan as having increased its subscriber base by 70% in both the third and fourth quarters of 2023. Standard with Ads is a big part of the reason that Netflix was able to net an additional 13.12 million subscribers in Q4 of last year, and the company has plans to ensure its continued adoption by customers.

• Netflix will discontinue offering its cheapest ad-free tier in more territories where Standard with Ads is available.
• The United Kingdom and Canada will be among the first countries to see that option eliminated for new subscribers.
• Netflix’s ad-free Basic plan was already discontinued for American audiences in summer 2023.

Bye Bye, Basic

There’s no more doubting the attractiveness of Netflix’s Standard with Ads plan for customers. After a slow start that saw new users hesitate to jump to the plan, Netflix has used a carrot-and-stick approach to get more customers for the ad-supported option. The carrot side of the equation was increased features for the plan, like the ability to download shows and movies for offline viewing, which Netflix introduced to Standard with Ads in November.

The stick was the discontinuance of Netflix’s cheapest ad-free plan for new subscribers, which happened for American customers in June 2023. In its letter to shareholders this week, Netflix promised that more countries would see that plan disappear as an option for new subscribers, starting with the United Kingdom and Canada in the second quarter of this year.

From a standpoint of raw numbers, Netflix’s call to discontinue its cheapest ad-free plan makes plenty of sense. The company makes significantly more money from customers on its ad plan, and both Canada and the U.K. are among the top territories in terms of average revenue per member (ARM), meaning that Netflix can make significant money by steering as many new subscribers to the cheaper Standard with Ads plan as possible.

Paid Account Sharing Also Drives Growth

One of the other ways that Netflix employed the stick with its customer base in 2023 was by cracking down on account sharing. In May, Netflix began to inform viewers who were using the password of a paid subscriber that they could not watch the service outside the account owner’s home and directed them to sign up for accounts of their own.

Netflix’s CFO said in September that password-sharing rules were working as intended, but that more new customers who were former sharers were signing up for ad-free plans because they had become so accustomed to using an ad-free account from a paid subscriber.

The crackdown was expected by some industry onlookers to touch off a wave of new account-sharing rules for other streaming services, and Disney has promised American subscribers that similar guidelines are coming to its streamers this year. But not all streaming providers agree on the best path forward with password sharing rules; Paramount, for example, says that it doesn’t consider customers sharing passwords to be a “meaningful headwind” against future growth and a crackdown is unlikely in the near future.

Given Paramount’s current financial situation compared to Netflix’s currently, it may have cause to rethink that position. But Netflix will continue to steer its subscribers to its Standard with Ads plan in any way possible, and the next step will be to pull the ad-free Basic plan for new customers in Canada, the U.K., and other territories starting in the second quarter of 2024.

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Netflix

Netflix is a leading subscription-based video streaming service that offers on-demand access to an extensive library of over 3,000 movies, 2,000+ TV shows, and a growing collection of acclaimed Netflix originals. Renowned for producing groundbreaking content, Netflix has become a cultural powerhouse with hit originals like “Stranger Things,” “Wednesday,” “Squid Game,” “The Crown,” “Tiger King,” “Bridgerton,” “The Witcher,” and “Black Mirror.”

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The platform constantly updates its catalog, introducing fresh content alongside timeless classics and international hits. Netflix’s commitment to storytelling has also earned critical acclaim, with award-winning exclusives such as “Roma,” “Marriage Story,” “The Power of the Dog,” “Mank,” and “Ma Rainey’s Black Bottom.” In 2023, their animated film “Guillermo del Toro’s Pinocchio” won an Academy Award for Best Animated Feature, further solidifying Netflix’s reputation for high-quality content.

Recently, Netflix has expanded beyond standard movies and TV titles with the addition of video podcasts, and is also exploring a digital store that would offer third-party streamers within the app.

Netflix offers three plans – stream on 2 devices in HD with the “Standard with Ads” ($8.99) plan, on 2 devices in HD with the “Standard” ($19.99) plan, and 4 devices in up to 4K on the “Premium” ($26.99) plan.

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