Netflix Adds Ads. What Does It Mean To You?

AAfter years of rejecting ads on its streaming platform, Netflix is ​​introducing ads to its service.

Netflix Co-CEO Ted Sarandos confirmed Thursday that the company will begin testing lower-priced, ad-supported subscription tiers. The streaming company is talking to several potential partners to help ease its entry into the world of advertising, Sarandos said while speaking at the Cannes Lions international advertising festival. That partner how are you including Comcast, NBCUniversal, and Google.

Sarandos’ confirmation comes in the middle of a difficult year for Netflix. As competition among entertainment services intensifies, streaming giants lost a customer for the first time in a decadefaced strong backlash for cracking down on password sharing, and laid off more than 150 employees (or about 1.5% of its global workforce).

“We’ve been ignoring a big segment of subscribers, namely people who say, ‘Hey, Netflix is ​​too expensive for me and I don’t mind advertising,’” Sarandos said. “We added an ad level. We didn’t add ads to Netflix as you know it today.”

Netflix co-CEO Reed Hastings has telegramed the advertising plan, suggesting on a first-quarter earnings call in April that the ad could roll out within the next year or two. “Those who have followed Netflix know that I am against the complexity of advertising and a big fan of the simplicity of subscriptions. But as much as I am a fan of that, I am a fan of greater consumer choice,” he said. “And allowing consumers who want lower prices, and are tolerant of advertising, to get what they want makes a lot of sense.”

Then, New York Reported time in May that Netflix had notified its employees that its ad-based plan could roll out by the end of the year, sooner than previously thought.

Netflix lost 200,000 subscribers in the first three months of 2022 and expects even bigger losses to come in April shareholder letter. The company’s share price has down more than 70% this year (compared to the S&P 500’s 21% drop), removing about $70 billion from its market cap and prompting shareholders to file a lawsuit alleged that Netflix misled investors about declining subscriber growth.

Now, the hope at Netflix is ​​to generate more revenue by embracing advertising. And it’s not alone. Competitors like Hulu and HBO Max are already offering ad-based plans that are cheaper than their commercial-free services, while Disney+ announced in March that it will roll out an ad-supported subscription tier by the end of 2022.

With Netflix’s current monthly subscription model, customers in the US can use their account on one, two, or four screens at a time and prices reflect the number of screens available—ranging between $9.99 and $19.99. The new ad-supported tier will create a lower-priced option for customers who are willing to watch ads in exchange for paying less.

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Write to Megan McCluskey at megan.mccluskey@time.com.

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