Netflix To Launch Ad-Supported Tier

Subscribers Pull the Plug

Netflix’s (NFLX) share price has plummeted by about 70% since its October 2021 high. The streaming pioneer lost some investor support after it experienced a net loss of subscribers for the first time in over a decade earlier this year. 200,000 consumers pulled the plug on the service in the first quarter relative to year-end 2021. Even so, the company still dominates market share in the streaming space and boasts about 222 million subscribers.

The company that shunned commercials in the past, is now rethinking its strategy as increasing competition in the space threatens its bottom line.

New Cheaper Tier

Co-CEO Ted Sarandos recently disclosed plans to offer an ad-supported tier to its platform. He asserted the option will be complementary to the ad-free subscription tier that until now has formed the basis of its revenue model. He expects the lower price point will attract new subscribers who find the ad-free tier too expensive.

Initially Sarandos said he plans to partner with an ad-sales company like NBCUniversal or Google (GOOGL), but will consider building up a proprietary advertising unit in the future.

Disney Has Similar Plans

To attract the budget-minded consumer, Disney (DIS) is planning a strategy similar for its Disney Plus programming. It will also offer an ad-supported tier, which will debut domestically before expanding abroad. Neither company has revealed what they will charge for the lower-priced tiers.

In the face of stiff competition and a shrunken valuation, some market observers see Netflix as a potential takeover target. When asked about this possibility, Sarandos responded that it’s “always a reality” but asserted that they are well-positioned to ultimately succeed. In the meantime, viewers will have an increasing number of streaming options, at a variety of price points.

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