5 Figures To Know About Netflix’s Newly Launched Ad-Supported Tier

Netflix rolled out Basic with Ads, the streamer’s new ad-supported subscription tier, on Thursday following 15 years years of standing firm on remaining ad-free.

After Netflix’s pandemic-fueled subscriber surge cooled, the company announced its ad-tier to attract new subscribers. The new tier is cheaper than the streamer’s other plans, at $6.99 per month and rolled out across the United States as well as Japan, the UK, Canada, Brazil and more on Thursday.

Of course, the big question is, will people subscribe? The answer to that is expected to be yes. Though in how many numbers, we won’t know for months. The other question is whether revising the Netflix business model could backfire.

“Historically, Netflix followed a relatively simple and straightforward playbook to attract net adds: invest aggressively in new content. Post-Covid, that formula stopped working as growth got pulled forward and competition from rivals picked up,” notes Tejas Dessai, research analyst at Global X ETFs. “The ad-based tier should help resume subscriber growth and add a new source of revenue for the company.”

What can we expect from the new ad-supported tier?

Here’s a look at five key numbers to keep an eye on, along with industry insiders’ predictions on what could happen.

1. 92%

Ninety-two percent of non-Netflix subscribers watch ad-supported platforms, according to Samba TV, a TV technology company offering research and analytic insights. “These audiences are not only open to ads, they are accustomed to the value exchange between platform and consumer when it comes to an ad model,” says Dallas Lawrence, senior vice president at Samba TV. That is, they are used to ads and don’t mind seeing them. Lawrence adds, “Overall, the opportunity to bring in an entirely new audience to Netflix from an ad-supported tier appears to be very strong.”

2. $2 billion to $2.5 billion

Netflix stands to bring in between $2 billion to $2.5 billion annually from an ad-supported tier, according to Dessai, a number based on existing levels of monetization pursued by YouTube and others.

3. 20%

That’s how much subscribers are expected to grow next year with the addition of the ad-supported tier. Explains Dessai, “We expect subscriber growth to resume to 20%-plus levels in 2023 and hold steady or accelerate for a couple years before cooling off. Success of the model as it is introduced in key markets like India, which have been tough for Netflix to crack so far will also be heartening.”

4. $9.45

Each new user will generate $9.45 per month in ad revenue, according to Global X ETFs estimates. The figure is based on a $35 CPM, or the cost of reaching 1,000 people, and an average of 60 minutes of viewing time a day per user.

5. 220 million

That’s where Netflix subscribers have been hovering, and everyone will keep a close eye on whether that number shoots up with the new tier—or whether those at higher subscription levels simply drop down to the cheaper ad-supported tier, and the number stays steady.

Experts vary on what could happen. “There has been a lot of discussion around cannibalization. The initial data appears to point in a direction where this will not be a major concern,” Lawrence says. “Most of the current Netflix subscribers considering a move to the ad tier appear to be users of the lower-cost subscription. Replacing a $10 or $15 a month ad-free subscription with a $6.99 a month subscription that will allow Netflix to also monetize ad revenue could ultimately result in an even higher average revenue per user for those who switch.”

But Dessai is more concerned. “There is the risk of cannibalization as existing customers spin down to the lower-priced option. Losing predictable subscription revenue could inflate costs and derail content investments.