Advertising is coming to Netflix and Disney+. Streamers’ imminent push into advertising is a big moment for both companies, but it’s also likely to have myriad knock-on effects for the broader ad-supported TV and video on demand (AVoD) market.
Netflix’s ad-supported level will reportedly launch on November 1 in countries including the US, UK, Canada, France, and Germany. It’s said to be priced at $7-$9 per month, marginally less expensive than Netflix’s current cheapest subscription plan of $9.99 in the US. Initially, the streamer’s ad level was supposed to roll out. in early 2023, but it was pushed forward to arrive a month before Disney+ Basic, the ad-supported level of the Mouse House.
Disney+ Basic launches on December 8 in the US for $7.99 a month, the same price as the current ad-free version of Disney+ (which will increase to $10.99 a month). The Basic plan will be implemented internationally in 2023.
Netflix announced that it would introduce its level of ads in April. It was a surprising turnaround for a company that had long touted the benefits of an ad-free subscription service. The change of heart came after the streamer’s first-quarter earnings report revealed a loss in subscribers for the first time in more than a decade.
Netflix had not confirmed many details of its service as international display went to the printer. Reports say it will have an ad load of about four minutes per hour for series, the same as Disney+ Basic. For movies, Netflix will run pre-roll ads. Netflix expects its next ad-supported subscription plan to reach about 40 million viewers worldwide by the third quarter of 2023, according to a Wall Street Journal report. Ads sell for about $65 per thousand viewers, significantly higher than many other streaming services.
Netflix and Disney+ follow in the footsteps of services like HBO Max and Disney-owned Hulu, which offer hybrid ad-supported tiers. Tom Harrington, director of television at Enders Analysis, is concerned that the level of ads will “go against the brand” of Netflix. For years, he says, the streamer has been considered an innovator.
“Every step of the way, they have been ahead of everyone else. They establish the perception of what a streaming service is, how it is paid for, when prices are raised, when content is released, and what the user interface looks like,” says Harrington.
But he thinks the level of ads will be like “what everyone else has been doing for the last five years… I thought they would have a light, branded, deeply immersive offering. It looks like they’re going to do pre-roll advertising and cut ads to half of their shows, which aren’t actually ad-supported. It may not look very good.
However, the move reflects the growing adoption of AVoD services by viewers, such as Fox’s Tubi and Channel 4’s All4, and free-to-air ad-supported television (FAST) channels such as Viacom’s Pluto TV. Amid a cost-of-living crisis in many countries, the signs are that consumers are getting tired of expensive plans and bundled services, and are turning to cheaper (or free) options. Recent research from Accenture showed that revenue from ad-supported streamers will grow much faster (+205%) than that of subscription services (+67%) over the next five years. Accenture reported that 63% of consumers agree that it is too expensive to pay for all the entertainment subscriptions they want.
Both Netflix and Disney hope their ad levels can bring in enough revenue to offset the slowdown in SVoD subscriber growth. Advertisers are likely interested in tapping into their audiences, which are often younger than traditional television. In recent years, younger viewers have eschewed commercial TV in favor of ad-free subscription services, making it harder for advertisers to reach them.
In particular, commercial broadcasters appear to be cautiously optimistic about Netflix and Disney+ entering the advertising market, arguing that they will help underscore how powerful television is as an advertising medium. ITV chief executive Carolyn McCall predicted they could boost the broadcaster by encouraging more brands to adopt the medium. “They will represent new entrants, which we will carefully monitor and compete where necessary, but they could grow the TV advertising market,” she said at the Royal Television Society’s London Convention in September.
The launch of Netflix and Disney+ ad levels could create something of a halo effect for the broader TV, AVoD and FAST sectors, perhaps driving more ad money into the broadcast and TV industries. If so, content producers will expect money to be spent on more original dramas and movies.