Netflix’s Ad-Based Pricing Tier Could Be More Expensive Than We Thought

There’s good news and bad news when it comes to the advertisement-supported subscription tier Netflix is planning to roll out soon. We’ll start with the good news.

Perhaps the most positive aspect of this new ad-based approach is the ratio of ads to content on Netflix will lean heavily toward content, at least at first. According to a report at Bloomberg, Netflix is shooting for just 4 minutes of ads for every hour of content. This means ads at the beginning of a stream and sprinkled throughout but none after, and fewer overall than competitors.

Better yet, not all content will include ads. In the beginning, at least, children’s programming and Netflix Original movies will be ad-free. Netflix will include ads in its original TV programs and is hoping to include ads in third-party content as well.

According to Bloomberg, “Studios like Sony, Universal, Warner Bros. and Paramount are happy to charge Netflix to put ads in old movies or old TV shows that were originally aired with ads. They are less eager to allow ads in newer programs.”

There’s one more piece of good news: Netflix is partnering with Microsoft on the advertising and the companies are committed to avoiding annoying repeat commercials during the same viewing session. Netflix “won’t be using too much targeting to tailor ads to the viewer. Most people will see the same ads. And Netflix wants to make sure the same spots don’t repeat over and over again,” Bloomberg notes.

Anyone who subscribes to ad-supported streaming services like Hulu or Peacock (which have ad-free tiers as well) knows just how annoying it can be to see the same ad four or five times during a single episode.

The Bad News

We’ll start off the bad news section with a caveat. Unlike Disney, which is raising the price of Disney+ for ad-free subscribers while keeping the current rate for subscriptions with ads, Netflix is actually offering a lower-priced tier for its ad-based model.

However, this tier is reportedly going to cost somewhere between $7 and $9 per month and will not include downloadable content, which is too complicated to make work with ads.

Depending on the final price Netflix settles on, subscribers are looking at an option that’s either about half the cost of the most popular current subscription—Standard at $15.49/month—or about half the cost of its premium, $19.99/month plan.

While that definitely represents significant savings, it’s still potentially high compared to competitors. Peacock offers a free version, an ad-based tier for $4.99/month and a premium tier that is (mostly) ad-free for $9.99/month.

Hulu costs $6.99/month for ad-supported plans and $12.99/month to delete ad breaks, and can be bundled with Disney+ and ESPN+ for $69.99/year (with ads) or $75.99/year (without ads).

That last option comes to just $6.33/month for Hulu, Disney+ and ESPN+ without ads, and is clearly the sweet spot in terms of pricing. It’s a no-brainer.

In any case, it will be interesting to see how this shakes out, what sort of other limitations will be in place in terms of screen resolution (only premium offers Ultra-HD) and number of logged in devices. Ads do make sense in a lot of ways, but we find ourselves drifting slowly back toward the days of cable in more ways than one.

Now we find more and more streaming content supported by commercials. To watch all the shows out there, you need to subscribe to so many different services, at a certain point it’s like paying for cable all over again—though we do have more choices and can package everything a la carte and cancel whenever we want.

Depending on the direction Netflix goes with cancellations and new content, a cheaper ad-supported option may not be that bad. I currently subscribe to the ad-based Peacock service and commercial breaks feel almost nostalgic. You can get up and grab something to drink or talk with one another for thirty or sixty seconds. It’s still a lot better than the 20 minutes of commercials you used to have to wait through.

Then again, if these plans prove popular we may find ourselves sitting through longer and longer commercial breaks in the future. All of this, on top of Netflix’s crackdown on account sharing, could put a damper on the entire streaming business and test consumer loyalty.

We shall see.

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