Netflix sets its sights for an ad-supported tier by end of 2022

Netflix’s plans to introduce an ad-supported tier now have solid ground – with Netflix executives stating the service could implement ads within the final three months of 2022. This information, told to Netflix employees in a recent note, was disclosed by two anonymous sources to the New York Times.

Netflix, which has long maintained its strictly SVOD model, announced it’s considering bringing in ads after reporting subpar Q1 2022 earnings – a 200,000 net subscriber loss. CEO Reed Hastings said on the earnings call the company is “quite open to offering even lower prices with advertising as a consumer choice.”

At the time of the earnings report, Netflix executives didn’t specify a timeframe for implementation of a lower cost ad-supported tier. Netflix’s stance on ads was a shift from CFO Spencer Neumann’s comments in March, saying “never say never, but it’s not in our plans.”

The divulged corporate note suggests the service is changing gears from its ad-free only model, and quickly.

The move to ads is “fast and ambitious and it will require some trade-offs,” said the note, according to New York Times. It also said Netflix competitors like HBO and Hulu have been able to “maintain strong brands while offering an ad-supported service.”

Indeed, most of the major streaming services have some sort of ad-supported option in place. Aside from Netflix, Apple is the only other major streaming player that hasn't introduced or announced plans for an ad-supported service, Netflix executives noted. AMC, which runs a number of FAST linear channels, indicated in its recent earnings call it has no plans to introduce an ad-supported tier for its SVOD products. But these three companies seem to be outliers in an increasingly ad-oriented landscape.

Netflix appears to be in a tight spot – even a shareholder lawsuit is currently hanging over the company’s head. But Netflix turning towards ads shouldn’t come as a surprise, according to Alan Wolk, lead analyst at TV[R]EV. In his recent Week in Review column, Wolk said the company has already signed up around two-thirds of U.S. households, leaving one-third of viewers who are unsure if they want to pay $15.49 per month – the price for Netflix’s standard plan.

Wolk further added Netflix may even consider a FAST model for Africa and Latin America audiences, as another cost-efficient option for subscribers.

With the streaming landscape in such a fragmented state, consumers are approaching a limit to how many SVOD services they’re willing to pay for, One Touch Intelligence Lead Analyst Michael Grebb pointed out in an April Industry Voices column. That mindset is likely pushing Netflix to entertain a cheaper ad-supported model.

“When we think of the explosion in ad-supported streaming, including a strong slate of AVODs and a growing universe of FAST-live channels, it’s worth asking whether the pendulum has started to swing back to a simpler time when we tolerated advertising to pay for content,” wrote Grebb.

Netflix’s note to employees further added the ad-supported tier would roll out “in tandem with our broader plans to charge for [password] sharing.” The streaming service began its password-sharing crackdown in March, testing additional fees for Netflix subscribers in Latin America.

Netflix has yet to suggest such fees will factor into those broader plans, but they could affect the company’s subscriber numbers throughout this year. A recent Aluma Insights survey cited 13% of U.S. adult Netflix users would cancel their subscriptions if the service charged $3 per month for additional out-of-home users.