When Netflix launches its cheaper, ad-supported tier, new movies and kids’ programming will remain ad-free oases, per a report Friday from Bloomberg’s Lucas Shaw.
Citing “people familiar with the plans,” Shaw wrote that the Los Gatos, California, firm has told partners that it won’t run ads during original movies and kids’ shows, citing licensing holdups and a desire not to mess with the movie-viewing experience.
The story notes that monetizing other content with ads will cost Netflix extra upfront, because its existing agreements don’t cover that possibility. Shaw wrote that Netflix expects to pay “between 10% and 15% of the current value” of those deals.
“It’s not surprising to see Netflix ease advertising into its experience at the get-go, particularly inserting them into natural TV spots and avoiding them in new movies,” wrote Brett Sappington, a vice president at the research firm Interpret, in an email. “I expect Netflix will test a variety of options in terms of ad loads, timing, duration, targeting, and other factors over the next year or two as it optimizes that tradeoff balance between ad-supported content viewer experience and revenue generation.
His colleague Mark Gent, SVP of media strategy, added that showing targeted ads to children would bring concerns over compliance and customer anxiety.
“Netflix can’t collect data on kids viewing anyway, so the (highly targeted / personalized) ad proposition isn’t as compelling,” said Gent. “The upside probably doesn’t make sense against the downside of significant account churn from parents unhappy with ads appearing in their chief ‘babysitter media.’”
Due to laws, Netflix can't target ads to children under age 13, a complicating factor that Disney has noted in discussing plans for its upcoming ad-supported tier of Disney+.
Netflix had socked subscribers with a series of rate hikes, most most recently in January, while telling industry types as late as March that ads were “not in our plans.” But then it reported a Q1 loss of 200,000 subscribers and announced on the earnings call then that it would explore offering a cheaper-with-ads tier.
The company is now hustling to get that service launched sometime in early 2023.
In July, Netflix announced that it had picked Microsoft to run its advertising. Days later, it reported an even steeper drop in subscriptions, 970,000 in Q2.
It appears that this upcoming tier will also require giving up one key feature of Netflix’s mobile and Windows apps: the ability to download a show or movie for offline viewing.
Last Wednesday, iOS developer Steve Moser cited text in the Netflix mobile app saying the ad-supported tier would not allow downloads. He also highlighted text advising subscribers that the setup experience would ask them to provide “a few details to make sure you get the most relevant ads.”
In a report released Monday, S&P Global Market Intelligence’s Kagan media research unit noted that ad-supported tiers have been quite popular at Hulu, Peacock Premium, Paramount+ and Discovery+, with 65% to 70% of viewers of those services testifying to their use of them in a survey.