Netflix co-CEO Ted Sarandos confirmed on Thursday that the company would begin testing an ad-supported, lower-priced subscription tier. The streaming company is speaking to multiple potential partners to help ease its entrance into the ad world, Sarandos said while speaking at the international ad festival Cannes Lions. Those partners reportedly include Comcast, NBCUniversal, and Google.
Sarandos’ confirmation comes in the midst of a rough year for Netflix. As competition among entertainment services grows more intense, the streaming giant lost subscribers for the first time in a decade, faced a backlash for cracking down on password sharing, and laid off over 150 employees (or about 1.5% of its global workforce).
“We’ve left a big customer segment off the table, which is people who say, ‘Hey, Netflix is too expensive for me and I don’t mind advertising,’” Sarandos said. “We’re adding an ad-tier. We’re not adding ads to Netflix as you know it today.”
Netflix co-CEO Reed Hastings had telegraphed the advertising plan, suggesting on a first-quarter earnings call in April that ads could be on the way in the next year or two. “Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice,” he said. “And allowing consumers who like to have a lower price, and are advertising tolerant, to get what they want makes a lot of sense.”
Then, the New York Times reported in May that Netflix had told its employees an ad-based plan could launch by the end of the year, sooner than previously expected.
Netflix lost 200,000 subscribers in the first three months of 2022 and forecasted greater losses to come in an April shareholder letter. The company’s stock price has plunged more than 70% this year (compared with the S&P 500’s 21% decline), wiping out roughly $70 billion of its market capitalization and prompting shareholders to file a lawsuit alleging that Netflix misled investors about declining subscriber growth.
Now, the hope at Netflix is to generate more revenue by embracing ads. And it’s not alone. Competitors like Hulu and HBO Max already offer ad-based plans that are cheaper than their commercial-free services, while Disney+ announced in March that it would be rolling out an ad-supported subscription tier in late 2022.
With Netflix’s current monthly subscription model, subscribers in the U.S. can use their account on one, two, or four screens at once and prices reflect the number of screens available—ranging between $9.99 and $19.99. The new ad-supported tier will create a lower-priced option for subscribers who are willing to watch commercials in exchange for paying a little less.