Netflix mulls introducing free ad-supported tier. The circle is complete

Netflix, once a pioneer of ad-free viewing that offered a break from traditional TV norms, is now contemplating launching free ad-supported versions of its service in markets like Europe and Asia, Bloomberg reported. While these plans are still in early stages, they mark a significant shift for a platform that once championed an ad-free experience.

The plans should not come completely out of the blue, though. Netflix has been toying with ads for almost two years now. It first introduced an ad-supported plan in November 2022, and has since hiked the prices of its ad-free plans several times while also dropping its cheapest ad-free version altogether. In the last six months, Netflix’s ad tier nearly doubled, reaching more than 40 million subscribers.

And they’re not stopping there. Greg Peters, Netflix’s co-CEO, recently told The Verge that they view ad sales as “a new muscle” for the streaming giant to “build” and then apparently flex. However, unlike Netflix’s dominance in global streaming alongside Google-owned YouTube, its foray into advertising revenue has been lackluster so far. According to a recent Madison and Wall survey, cited by Bloomberg, Netflix currently ranks around ninth or tenth in the online video advertising space, all while lagging far behind not only YouTube, but also Disney and Paramount, and struggling to catch up with Amazon and Roku.

The plans to offer a free ad-supported tier, albeit in select markets, suggests that pivot towards monetizing user data, in other words — making users and not the extensive library of award-winning shows a product, might be well in the pipeline.

The adoption of ad-supported tier is growing, but why?

According to Horizon Media’s Why Group’s 2023 Inflation Nation Report, cited by Forbes, more people in the US are turning to ad-supported streaming services to save money because of high inflation. There’s been a seven percentage point increase in ad-supported subscriptions from 2022, according to the report. Additionally, one in three people who cancel a paid streaming service plan said they did so so that they can subscribe to an ad-supported one instead.

Namely, 21% of people 18-34 said they have moved or plan to move to an ad-supported streaming service to reduce expenses, while 18% of 35-44s and 15% of 50-64s did.

Maxine Gurevich of Horizon Media argued that as long as people find the service valuable and the ads are minimally intrusive — that is, highly relevant and engaging — they should not detract from the overall user experience. In other words, people should be fine with them.

But we have our concerns. First, encountering a more relevant ad could actually feel more intrusive, not less. Second, Netflix has already reneged on its promise not to introduce ads before. Now, as it delves deeper into the advertising business, it may mean more broken promises for users.

The first red flags have already been raised. For example, Netflix’s intention to show ads during the NFL’s Christmas games to all subscribers, including those in the ad-free tier, is a tad disconcerting. If Netflix can’t guarantee an ad-free experience on its ad-free tier, it undermines the trust users have in its subscription promises. It suggests that even where users expect to be free of interruptions, the introduction of ads may become the norm, potentially ruining the viewing experience for many subscribers.

Only time will tell what happens with Netflix’s subscription tiers, and whether we’ll see moderately priced ad-supported options alongside premium ad-free versions that will be generally out of reach for regular consumers. But as the saying goes, “If you’re not paying for the product, you are the product.”