Netflix always wanted to remain ad-free. But now that the streaming pioneer is losing subscribers and facing more competition from lower-priced options, Netflix is seriously considering a cheaper plan that’s supported by advertisements.
The company’s co-CEO Reed Hastings made the announcement Tuesday following a disappointing first-quarter earnings report that showed Netflix shed about 200,000 subscribers between January and March. Following the earnings report, Netflix’s stock price plummeted more than 30%.
“It would be a plan layer, like it is at Hulu. So if you still want the ad-free option, you'll be able to have that as a consumer,” Hastings said on an earnings call. “And if you would rather pay a lower price and you're ad-tolerant, we're going to cater to you also.”
As Hastings noted, many of Netflix’s competitors have offered cheaper subscription plans with ads for quite a while. While Netflix has resisted ads, it’s now seriously considering them to stem the exodus of subscribers. Netflix did not release hard details about pricing or a possible launch date for the ads-based tier, but it could be coming sooner than later.
Since the ad model is tried-and-true for so many streaming services, Hastings suggested it wouldn’t require much testing and could be rolled out fairly quickly.
“That's something we're looking at now, we're trying to figure out over the next year or two,” he said.
Despite some of the backlash on social media, people are generally very supportive of ads-based streaming options.
“When given the choice, most consumers prefer to deal with advertisements as long as they can pay less,” according to a report from Morning Consult.
The research firm found that 57% of American respondents preferred a lower-cost streaming service with ads opposed to a high-cost, ad-free option. Only 14% of Americans preferred the high-cost options without ads, and 25% had no opinion.
At a time when inflation is eating into the budgets of Americans, expensive streaming subscriptions might be the first expense to cut — especially for people who pay for several different plans every month. A lower-priced option might be welcomed by many and could help Netflix from hemorrhaging even more subscribers.
Netflix vs. Hulu vs. Disney+: What's the cheapest streaming plan?
While we don’t yet know what price range Netflix is considering for the ads-based subscription, you can get a ballpark estimate by looking at the cheapest tier across providers.
- Amazon Prime Video: $8.99 per month for a standalone membership. Prime Video, which is ad-free by default, is also included with an Amazon Prime Membership for $14.99 per month. (Students may also get an overall Prime Membership for $7.49, which includes Prime Video.)
- Disney+: $7.99 per month and ad-free by default. (A cheaper tier with ads is also forthcoming, expected later this year.)
- HBO Max: $9.99 per month for its standalone basic tier with ads. (May be available cheaper as an add-on to another subscription service.)
- Hulu: $6.99 per month for ad-supported tier without add-ons. (Verified students can get this plan for $1.99 per month.)
- Netflix: $9.99 per month for basic plan, which is currently ad-free.
It's also worth noting that Amazon runs a free ad-based streaming service currently called IMDb TV, separate from Prime Video. (On April 27, its name will change to Amazon Freevee.)
For Netflix to remain competitive with Hulu and other ad-based models, it would make sense to offer a new plan priced between $6 and $9.
"Those who have followed Netflix know that I've been against the complexity of advertising and a big fan of the simplicity of subscription," Hastings said. "But as much I'm a fan of that, I'm a bigger fan of consumer choice."