In a saturated streaming market, Netflix cannot (and should not) bet on ads alone — or continuously raising monthly subscription prices
At long last, after years of emphatically telling the world that it would never do it (and that it would be blasphemous to think otherwise), Netflix launches its discounted $6.99 monthly ad-supported tier this week (something that I’ve predicted for years). It’s a critical “never say never” moment for the company that just recently announced a positive turnaround with 2.41 million new paid subscribers after two consecutive quarters of losses. Many pundits breathlessly cheered the Q3 news as proof that the streaming leader is alive and well once again — Forbes called it a “monster Q3” — and that its new ad-supported tier will take the company to new heights in the face of increasing hyper-competition. But will it? And will it be enough for Netflix to stay independent long-term instead of being swallowed up by a much bigger fish? (I’ve discussed that possibility in my last few columns.)
The quick answer is “no” — ads alone won’t be the great “fix” that many believe. And Netflix’s ad moves also carry significant risks. First, ads disrupt the platform’s “pure” high-quality streaming experience that we all know and love (and that co-CEOs Reed Hastings and Ted Sarandos always touted as a major differentiator). That, in turn, may adversely impact its brand and overall customer satisfaction (which can be measured by “net promoter scores” or “NPS”). For those paying subscribers who “downgrade” to the new ad-supported tier, there is a serious risk of increased churn, especially as they compare (and prune) their streaming alternatives in these tough economic times. Netflix, after all, lacks the highly marketable franchise content of others (including Disney+, HBO Max and Peacock).