Study: Netflix’s Ad-Supported Tier Not Performing as Expected; ‘Boomerang’ Concerns Growing for Service
In a world with more streaming options than ever, it appears that avoiding advertisements may still be many people’s top priority. According to the results of a new study by London-based data, insights and consulting company Kantar, the new ad-supported video-on-demand (AVOD) tier being offered by Netflix hasn’t been as successful as many at the streaming giant may have hoped.
Despite the $3 per month that can be saved by opting for the ad-supported plan rather than Netflix’s standard $9.99 ad-free subscription, the Basic with Ads option has only been picked up by 12% of Netflix’s subscribers. The new, cheaper tier was intended to win new subscribers to the service, as well as recover lost subscribers who had left the platform after Netflix experienced two quarters of subscriber declines in 2022.
While there are a variety of factors that Netflix’s recent decline in users can be attributed to, including increased competition, password sharing, and rising prices, it appears that the offer of a cheaper service with ads included was not as enticing as they had hoped, at least not at first. Nearly all of the AVOD users gained by Netflix were existing users who traded down from the standard, ad-free plan. To make matters worse, those who moved down to the AVOD plan were, in general, less satisfied with the service and its variety of content. To date, Netflix has still not been able to secure approvals from all of its content partners to stream every title in its vast library on the ad-supported tier, meaning that not every series or movie is available to Basic with Ads subscribers.
While Netflix struggles to gain subscribers through an AVOD plan, other streaming services are experiencing more success in that arena. Services like HBO Max, Peacock, and Hulu have rolled out AVOD options that have been experiencing rapid growth, with growth of 33% from 2021.
While the popularity of AVOD subscriptions, in general, seems to be rising, it also tends to lead to boomerang behavior, with AVOD subscriptions being 57% more likely to be canceled than traditional premium subscriptions. While boomeranging is becoming more common as users tend to have access to a wide variety of different streaming services, it certainly is not an encouraging behavior in terms of the potential long-term growth offered by these AVOD options.
The Kantar study supports other recent findings that indicate that recent ad-tier launches have been surprisingly slowly adopted in recent months.
Netflix and Disney+ are two of the largest streaming services in the world, and both launched ad-supported subscription options in the final months of 2022, so it might not be a huge surprise that, given their popularity, there are fewer remaining consumers left to sign up for the cheaper option. However, the trends across the industry are clear, ad-supported streaming is continuing to grow rapidly; but with more options, the potential for increased churn grows as well. As people try out new services and pricing plans, they will undoubtedly find the ones that suit their needs and discard the ones that don’t.
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.