Netflix's ad-supported tier sees tepid initial reception - report

Just under two months have passed since Netflix introduced its first ad-supported tier, but it appears the cheaper plan isn’t fueling subscriber growth.

The Basic with Ads plan only accounted for 9% of new Netflix sign-ups in the U.S. during the month of November, The Wall Street Journal reported on Tuesday, citing data from subscription analytics firm Antenna.

According to Antenna, over half (57%) of subscribers to the ad-supported tier last month were either returning customers or signing up for the first time, while 43% of subscribers downgraded from Netflix’s pricier plans.

Netflix’s ad-supported plan launched on November 3 at $6.99 per month, $1 cheaper than Disney+’s new ad-supported tier. Prior to the launch, Netflix said programming would contain an average of four to five minutes of ads per hour.

“It’s still very early days for our ad-supported tier and we’re pleased with its launch and engagement, as well as the eagerness of advertisers to partner with Netflix,” a Netflix spokesperson told WSJ. Netflix rebuffed Antenna's figures, telling the WSJ they contained some inaccuracies. The firm also found just 0.2% of Netflix’s U.S. subscribers were on the ad-supported plan as of the end of November.

Netflix in its third quarter earnings expressed optimism about its ad-supported tier, with COO Greg Peters noting initial demand from advertisers is “very strong.” He added Netflix aims to develop a more personalized, targeted ad-experience down the line, once the streamer has better established itself in the AVOD space.

It's also likely Netflix will eventually introduce multiple ad-supported tiers, similar to its existing ad-free offering, the company said at a UBS investor conference this month.

As for Netflix’s overall subscriber growth, the streamer added 2.4 million subscribers in the third quarter, beating its own projections of 1 million subscriber gains. That growth, however, was mainly concentrated in Netflix’s international markets and less so in North America – where Netflix saw 104,000 net subscriber adds across the U.S. and Canada.

Netflix set forth on its advertising ambitions after shedding 200,000 subscribers in the first quarter. Bolstering those plans, Netflix in July enlisted Microsoft as its global technology and ad sales partner.

Despite the supposedly low volume of sign-ups for Netflix’s ad-supported plan, investment firm Oppenheimer suggested the streamer is still working out the kinks in its monetization strategy.

"Not surprising that ad launch has some hiccups and Netflix does not want to flood ads to meet commitments at expense of engagement," said Oppenheimer analyst Jason Helfstein, per Seeking Alpha. "Advertisers are also shifting non-holiday specific unspent funds to 1Q. Microsoft is likely paying minimum guarantees; therefore, we don't see an impact to revenue in the short term."