To ad or not to ad? That is the question.
Netflix, the video streaming service that pioneered the subscription video-on-demand (SVOD) business model and became a cultural zeitgeist, recently announced it would introduce adverts to its service. From the beginning of November, Netflix will launch an ad-supported tier in 12 countries, allowing its customers to pay for a slightly less expensive subscription plan in exchange for watching around 5 minutes of adverts per hour. But are consumers willing to tolerate adverts and still pay for a subscription?
Nobody can deny that Netflix is a powerhouse in video streaming. Still, in recent years, it has faced increased competition from Disney+ and Hulu and smaller regional players in local markets. We recently conducted some original consumer research, which surveyed 3,000 consumers (1,000 in the UK and 2,000 in the US) and found that in the US, over two-thirds of consumers (68%) would purchase a subscription fee to an entertainment streaming service to remove ads. In the UK, it was a similar figure, with the majority, 58% (rising to 67% in those aged 18-35), saying they would rather pay that little bit extra to remove ads. Our survey also found that the services where viewers are happy to tolerate ads are free streaming services. We found that 58% of the consumers in the US and 60% in the UK don’t mind watching adverts for free streaming services; it’s when they are paying for a subscription, no matter the cost, they expect ad-free content.
So what could this mean for Netflix?
Our research found that almost two-thirds (57%) of consumers have not canceled a single video streaming subscription. However, the cost of living crisis impacts everyone, so people are naturally assessing their costs, including video streaming services. Currently, most consumers have kept all of their subscriptions, which could be because more people are staying home and, therefore, want entertainment options. However, there will be people who need to reduce their expenditures, so offering a cheaper, ad-supported plan makes Netflix more accessible and could help boost subscriber retention and acquisition.
Of course, Netflix cannot (and probably doesn’t) view its ad-supported tier as the only way to reduce subscriber churn. Quality content is still a huge factor when viewers consider which streaming service to keep. Still, Netflix has enjoyed considerable success recently with Stranger Things; Monster: The Jeffrey Dahmer Story, and there’s already a massive buzz around the upcoming return of The Crown. Furthermore, a high-quality online experience free from buffering and delays is also essential for viewers.
So, while it’s not hugely surprising that Netflix is introducing an ad-supported plan, our research shows that most consumers will pay extra for an ad-free experience. Netflix’s decision may keep viewers on the fence about keeping their subscription and even entice new viewers to its service. Overall, Netflix giving its viewers more options about how much they pay for its service is a good thing for the company and its customers and will help ensure its long-term future.
Personally, while I think it makes sense for Netflix to introduce adverts to its service, I believe combining more flexible plans with high-quality content and a superior viewing experience will be what wins the streaming wars.