Netflix said Thursday it will introduce a streaming plan with ads for about $7 a month in November, a move to attract new customers after the company lost customers in the first half of the year.
The $6.99 cost for the “Basic with Ads” plan is $3 less than Netflix’s lowest-priced tier without ads. The new option will be rolled out in 12 countries including the US, Brazil, Germany, Japan and Korea in 10 days.
Netflix said subscribers to the plan will see about four to five minutes of ads per hour. Newly released movies will have limited commercials to preserve the cinematic experience.
Netflix Chief Operating Officer Greg Peters told reporters that about 5% to 10% of Netflix’s programming will not be available on ad-supported alternatives due to licensing restrictions.
Netflix shares were up 5.4 percent at $232.86 in late afternoon trading. The company’s stock had fallen 62 percent this year before Thursday’s announcement.
Netflix executives have for years strongly opposed adding advertising to their service. He announced the change of heart in April after the company stunned Wall Street by predicting a drop in subscribers and additional churn in the first quarter.
“At Netflix we have a huge opportunity to grow our unit and attract more subscribers. And part of that is a broader range of pricing plans,” Peters said Thursday.
Peters declined to estimate how many customers would sign up for the ad-supported plan or how much additional revenue Netflix could generate. The company will provide a forecast for the fourth quarter when it releases earnings on Tuesday.
Cowen & Co analyst John Blackledge said in a research note that the increase in advertising presented a “significant opportunity to unlock membership growth” among price-sensitive audiences.
He pointed to a Wall Street Journal report that Netflix has set a target of 13.3 million ad viewers in the United States by the third quarter of 2023.
Other streaming services, including Walt Disney Co’s Hulu and Disney+ and Warner Bros Discovery’s HBO Max, already have ad-supported options that cost less. Those services charge between $8 and $10 per month for plans with ads.
Netflix, known for hits like “Stranger Things” and “Squid Game,” reported 220.7 million paying subscribers as of June, down about 1.2 million from the start of the year. The company predicts it will add 1 million users in the third quarter.
Netflix’s ad-supported plan will launch on November 1 in Canada and Mexico, and on November 3 in the United States, Brazil, the United Kingdom, France, Italy, Germany, Australia, Korea and Japan.
Spain will follow a week later on November 10.
“They’re in a great position, because they’re a premium brand and marketers are very interested in being associated with quality content,” said Greg Kahn, a former advertising industry executive who now runs a media advisory firm.
Kahn predicted that the new ad-supported service would likely cause some price-sensitive customers to opt for a cheaper tier, but added, “There’s a lot of potential to generate revenue and gain a new subscriber base.” are.”
Netflix has nearly sold out of its ad inventory to launch the new tier, drawing interest from automakers, consumer packaged goods companies and luxury brands, said Jeremi Gorman, Netflix’s president of global advertising.
Advertisers can target viewers by country or genre, or run ads on the service’s top 10 shows. Brands can also exclude ads from content featuring graphic violence, sex or nudity, Gorman said. Netflix is ​​also introducing third-party verification to verify ad impressions and traffic. Ratings agency Nielsen will also provide audience measurements from next year.
