Will People Flock To Netflix’s New Ad-Supported Service? Experts Weigh In

For any business, doing something you have never done before is always a risky move—especially when you’re known for not doing the thing you are now going to do.

And that is what NetflixNFLX
is doing. The streaming service released on Thursday much-anticipated details about its new ad-supported tier, which will debut in November. It set the price ($6.99), the length (four to five minutes per hour) and the availability (rolling out with a limited initial number of movies and TV shows, due to licensing deals).

But the biggest question about the ad-supported tier is one Netflix can’t answer yet, and that’s whether it will help stem the slow leak of subscribers it’s been experiencing this year, amid challenges from other streamers and questions about the sustainability of its current business model.

The ad-supported option will likely be more of a band-aid than a long-term answer. But industry experts say Netflix’s initial plans for adding advertising look promising.

“Netflix understands the streaming consumer incredibly well,” says Ashwin Navin, co-founder and CEO of Samba TV, a TV technology company offering research and analytic insights. “The sweet spot for streamers looking to move to an ad-supported model is one that offers five minutes or less of advertising per hour and reduces the cost of their subscription by half. This new tier threads that needle nicely.”

Navin points out that Netflix’s goal is really to redefine how people think of the company. Most consumers are open to advertising; they just aren’t used to seeing it on Netflix, which has been ad-free since its launch. He sees a growth proposition in the new approach.

“The exciting value proposition for Netflix is not just in moving those on lower priced tiers to the ad model to grow average revenue per user; it is the significant opportunity they now have to bring in and monetize millions of net new or lapsed subscribers,” Navin says. “Nine out of 10 adults who do not currently have a Netflix subscription watch other ad-supported streaming content today. This massive addressable market of new viewers has no aversion to watching ads in exchange for free or reduced-priced content and are prime candidates to turn to Netflix’s new ad-supported tier.”

Tammy Parker, principal analyst at data and analytics provider GlobalData, notes that the new tier is three dollars less than the streamer’s basic tier and $8.50 less than the standard price, a good price point.

“By not unveiling a disruptively low price or a frustratingly stingy AVOD [advertising-based video-on-demand] discount, Netflix keeps its investors happy and leaves itself room to adjust pricing in the future, depending, of course, upon what rivals do with their own price points,” she says.

She believes the pricing compares favorably to several current or soon-to-launch AVOD options. In fact, Netflix fast-tracked its AVOD, which was initially slated for next year, to hop ahead of Disney+’s December AVOD rollout.

“Netflix Basic with Ads will cost one dollar less than the ad-supported tier of Hulu and the forthcoming Disney+ AVOD tier, each of which is priced at $7.99 per month. Basic with Ads is also coming in at three dollars per month less than HBO Max’s $9.99 ad-supported tier, which has been positioned as a premium entertainment viewing service,” she says.

Parker points out, though, that Netflix’s AVOD option, per month, is two dollars higher than either Paramount+ or Peacock’s AVOD tiers. She says Netflix may think it can get away with the higher price because it has a “rich inventory of TV series and films [that] provides a more appealing viewing experience than those slightly lower-cost services.”

Parker notes that over the summer, Netflix predicted it would gain paid net adds of more than 1 million during third quarter 2022, down from the 4.4 million it added in third quarter last year. She is cautiously optimistic about how the new tier will impact the stalled growth.

“As the cost of living continues escalating, budget-conscious consumers seeking a less expensive Netflix tier will gladly accept ads intruding on their viewing experience in exchange for a lower monthly subscription cost,” she says.

Netflix said it is almost sold out of ads in its initial inventory. The service will bow Nov. 3.