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Here’s Everything You Need To Know About Netflix’s New Ad Tier
Courtesy of Netflix

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Netflix viewers may have to watch Lindsay Lohan’s upcoming Christmas movie with ads.

In May, the streamer once said it would incorporate commercials by the end of the year, but little is known about exactly when the new ad tier will roll out and how it will impact content.

Netflix has been relatively quiet on that front, telling many outlets that the move is still early days. But that hasn’t stopped many from exploring what the streaming giant’s ads could look like.

Here’s what we know and what we don’t know about Netflix’s advertising plans.

What Netflix Has Said

In July, Netflix tapped Microsoft to back its global advertising technology and sales. The partnership means Netflix will have to share ad revenue with the tech giant. It also means Netflix doesn’t have to build up its own ad-sales unit. Microsoft has no streaming ad sales experience, but it did bring in $10 billion in ad revenue—and even a portion of that success could help boost Netflix out of its current revenue problems.

In August, the company lured Jeremi Gorman and Peter Naylor away from Snapchat. Gorman, who was Snap’s chief business officer, will be president of worldwide advertising, while Naylor, who was Snap’s VP of sales, will be VP of ad sales for Netflix. Both boast long careers in ad sales at major tech companies, including Amazon and Hulu, which Netflix hopes will set them up for success.

When Subscribers Can Expect Commercials

Executives apparently told staffers that ads would come in the final months of 2022, even though Netflix had originally told investors it was planning on an early 2023 launch. But with Disney Plus launching its ad tier on December 8, industry sources claimed Netflix would have the new tier ready to go by November.

People Will Pay Less—But Get Fewer Features

The ad-supported tier likely will be between $7 and $9—about half of the more popular mid-tier subscription and nearly matching its current lowest-priced tier, which costs $9.99. The lower price will be exchanged for four minutes of commercials per hour.

Kids programming will apparently be exempt from any ads, though not all third parties who license children’s shows have requested this. Netflix originals may also eventually include ads despite initially being ad-free. Additionally, those who opt for the new, ad-supported tier won’t be able to download content to view offline.

Netflix Is Looking for Big Buys From Advertisers

Two theories exist for how Netflix is approaching its media buyers:

Some think that Netflix is seeking smaller ad deals as it lets customers adjust to the change. But others suggest the streamer may be requesting top dollar in its ad pricing. Netflix is apparently requesting $65 for reaching 1,000 viewers—a price that surpasses the average $20 rate and is comparable to Super Bowl commercial costs.

Marketers, however, are skeptical. Especially considering that the ad tier will launch without a third-party measurement company to verify its metrics.

Ads Could Make Subscribers Jump Ship

Netflix’s switch to ads after decades of being staunchly ad-free was at least partially due to its falling subscription numbers. Whether this effort will successfully revive its viewership has been debated. Some analysts think the move will encourage people to downgrade from the $15 tier to the cheaper ad-supported tier without actually bringing in new subscribers. One survey found that 46% of current subscribers would make the switch and seems to suggest the lower price will attract newcomers. Alternatively, another survey found that 1 in 4 American Netflix subscribers plan on ditching the platform this year due to its cost.

Netflix allegedly remains optimistic, telling ad buyers that by Q3 of 2023 their ads will reach 40 million unique viewers.

Whether the new tier will lead to a subscriber surge is clearly a contentious question. But even if it doesn’t quite boost Netflix’s viewership, the ad-generated revenue could potentially bring in $3.5 billion by 2027—though that number is also contested. Earlier reports suggested the ad model could bring in $3 billion by 2024.

For now, this is all just speculation as Netflix races to find a quick solution for its recent financial woes. - Kristin Snyder

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