Netflix remains the world’s most popular video streaming service, but it is not immune to market dynamics and consumer whims. The company has experienced its first-ever subscriber decline in the decade or so that it has been in business, and it may have lost as many as 970,000 subscribers by the second quarter of 2022. (via CNN). The streaming giant, on the other hand, is confident that it already has a successful strategy in the works to address this: it has confirmed plans to create an ad-supported tier with a lower monthly fee, which has been a long-standing practice in many subscription-based services.
However, just because you’re seeing ads and paying a subscription doesn’t mean you’ll have access to everything Netflix has to offer, according to a recent report. Ad-supported streaming services are nothing new, and Netflix is an outlier in this regard. Many video and music streaming services provide a free tier and attempt to recoup losses through advertisements. In Netflix’s case, that ad-laden tier may not be free at all, but it does have a significantly lower monthly subscription fee.
Netflix appears to be determined to make this happen and hopes to launch this tier before the end of the year. However, it is far from finished, and the company admits that it is still in its early stages. This appears to entail navigating the legal quagmire of content licensing and consulting with studios about whether their content can be shown on this ad-supported tier.
Netflix negotiations pave the way for a cheaper plan
According to the Wall Street Journal, the streaming giant is renegotiating with major studios such as Warner Bros., Universal, and Sony to include their content in this upcoming subscription plan. Negotiations like this are common in the entertainment industry, and Netflix had to do the same when it wanted to allow subscribers to download shows.
Of course, that feature came at a cost, and Netflix had to add 10% to 15% on top of the original agreements. Studios may demand an additional premium of 15% to 30% to allow their shows to stream with ads, a premium that will undoubtedly influence how Netflix prices this tier. According to experts who spoke with the WSJ, there are no hard figures yet, and there are some gray legal areas regarding Netflix’s ability to show ads under existing deals in the first place.
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More importantly, these negotiations mean that not all third-party Netflix shows will be available to those on the ad-supported tier. Because they already have deals with other ad-supported services, some studios may prohibit specific content from being streamed with ads. This, in turn, could deter people from signing up for the cheaper but (potentially) more limited tier, reverting Netflix to square one in terms of subscriber numbers. A more limited selection, on the other hand, could serve as a teaser to entice subscribers to upgrade to a full plan. It’s too early to tell how this will play out, but Netflix will undoubtedly work hard to get some high-profile shows on the ad-supported tier to make up for lost time.