Although the launch of Netflix with ads was a major move for the streaming video and TV advertising sphere, the lower-cost subscription plan isn’t exactly off to a running start in terms of reeling in new subscribers, according to data from Kantar.
Netflix Basic with Ads debuted in November with a $6.99 per month price point that’s about $3 less per month than its base ad-free plan.
“This ad-based offer aims to reduce the high churn Netflix has faced over the last year, win new subscribers, and win back lost subscribers. So far, Netflix is not seeing the expected results,” wrote Kantar in its analysis.
As of Q4 about 12% of Netflix’s base comes from its plan with ads, according to Kantar, but nearly all of those are subscribers who in the first two months since Basic with Ads launched traded down from a pricier tier, rather than a new signup. The research firm found 11% of Netflix subscribers in Q3 traded down to the plan with ads in Q4. Of all new AVOD subscriptions across services in Q4, Netflix only captured 2%. However, with the intro of both Netflix and Disney+ plans with ads, the AVOD category overall accelerated and was the fastest growing streaming category (among SVOD, AVOD and FAST) in the period, up 17% quarter over quarter and 33% year over year.
Katar data on slow uptake of Netflix with ads follows a December report from the Wall Street Journal citing Antenna research as the plan having tepid reception, accounting for 9% of sign-ups in November. Netflix also had been refunding some advertisers after it was unable to meet audience viewership guarantees, as reported by Digiday. Separately on Wednesday, Nielsen announced an expanded multi-year agreement with Netflix that will see the streaming service subscribe to cross-platform audience data from streaming panels in Mexico and Poland, as well as National TV measurement data and Streaming Platform Ratings in the U.S. Netflix last year disclosed it would use Nielsen’s Digital ad Ratings (DAR) for its streaming plan with ads, starting sometime in 2023.
Alongside slow traction, Kantar said Netflix subscribers who traded down to AVOD “tend to be less satisfied with the service.”
“Amount of original content, variety of content, and quality of content are sticking points with Netflix AVOD subscribers compared to the ad-free subscribers, pointing to a higher churn rates among this group in the future,” wrote Kantar.
‘Wednesday’ fan favorite for December, but doesn’t offset losses
Kantar expects Netflix to see more growth for its plan with ads once the streaming giant releases its next big hit, noting highly trending titles are typically needed to win new subscribers and Netflix is still leaning on last summer’s “Stranger Things” season four release. That’s despite traction with more recent titles – and specifically “Wednesday,” which the research cited as the most enjoyed U.S. title for the month of December.
“Not even Wednesday or The Crown were able to bring in enough new subscribers to offset losses, despite being the top most enjoyed titles on the platform in Q4,” Kantar noted.
The new Addams Family series outpaced HBO’s “White Lotus,” which placed fourth for most enjoyed content last month, even though both had notable social and media attention. According to Kantar, “Wednesday” drove 7% of new subscriber acquisition for Netflix, with “White Lotus” driving 6% for HBO. One key difference the firm called out is that “Wednesday” viewers were 2x as likely to be a Gen Z or Millennial at 48%, compared to 22% of those watching “White Lotus,” meaning more success on social channels.
Kantar’s research finding that nearly all of Netflix’s AVOD subscribers are those that have traded down from higher-priced plans is also counter to the sentiment executives expressed last year that the ad tier base would not largely come from step-downs.
When the company reported third quarter earnings, Netflix COO and Chief Product Officer Greg Peters said he didn’t expect many users to switch from the commercial free version of Netflix to the plan with ads, but added that even if some subscribers do switch that it would eventually be in a good position as the ad tier brings in more users and ad revenue.
“We really anticipate that this is going to be a pro consumer model” that will bring more members in because of the lower price and then “the economics and the revenue will be fine even if some of those consumers switch plans,” Peters said in October.
And Netflix leadership has continued to reiterate a “crawl-walk-run” approach to its foray into advertising, with iterative improvements to expected as the service matures.
Consumers likely willing to pay for password sharing
And the SVOD player could be poised for success with another avenue it's pursuing to drive revenue growth and monetize subscribers, as Horowitz Research finds many could be amenable to paying extra for account sharing – something Netflix has tested out in markets in Latin America and plans to implement more widely this year as it cracks down on password sharing.
In the research firm’s State of OTA 2022 report, Horowitz found that seven of 10 Netflix users that share passwords would be willing to pay full price for the SVOD even if they couldn’t share their account. According to Horwitz, 18% of TV content viewers share access to Netflix while 42% pay for the service themselves, or about one in three Netflix users sharing access (this trend is similar across popular services including for Amazon Prime Video, with 15% sharing access and 44% paying themselves).
When Netflix last April discussed plans to make money off of users who were sharing accounts across different households, the streamer estimated its service was being shared with over 100 million non-paying households, including 30 million in the U.S. and Canada.
Horowitz Research CRO and Insights & Strategy Lead Adriana Waterston said Netflix has proven its value for the money thanks to its extensive content library and “as such, while Netflix’s crackdown on password sharing will likely lead to subscriber loss, the majority of subscribers will stay with the service.”
Still, Netflix needs to keep up that perceived value to keep viewers paying, according to Waterston.
“This will certainly be a challenge for Netflix moving forward as their programming costs continue to increase and as they add commercials,” she continued. “Also, other services considering password crackdowns will need to justify this move by finding ways to add value to their services, making them stickier for consumers.”
More details on progress for Netflix’s tier with ads and password sharing could come when the streamer reports fourth quarter results, which are scheduled for Thursday, January 19.