Netflix’s Reed Hastings Credits Hulu for Advancing Ad-Supported SVOD Business Model

Reed Hastings, co-founder and co-CEO of Netflix, now wishes the streamer had launched an ad-supported plan years ago. Speaking Nov. 30 at the New York Times’ Dealbook confab in New York City, Hastings said the service has two mantras: customer satisfaction and strong operating income. He said senior management (i.e., himself) failed to realize growing consumer demand for a lower-priced ad-supported plan.

“You’re right to say I didn’t believe in the ad-supported tactic for us,” he said. “And I was wrong about that.”

Netflix launched its ad-supported subscription streaming VOD plan on Nov. 3, less than six months after hastily announcing plans to reverse more than a decade of steadfastly refusing to sell commercials to subscribers in the form of a lower-priced service option.

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Hastings contends the proof that an ad-supported SVOD option could work was right in front of him all along. The executive said Hulu, which launched an ad-supported option on day one in 2007, proved that a streaming service could operate an AVOD service at scale, offering consumers lower prices, which would translate into a better overall business model.

In fact, it wasn’t until Netflix missed its first quarter subscriber growth projection at the end of March this year that Hastings told investors about a plans to launch an AVOD tier in early 2023. With Disney planning to launch a lower priced ad-supported option for Disney+ on Dec. 8, Netflix expedited the launch of its plan.

“So we did switch on that, and credit to Hulu and [former CEO] Jason Kilar for figuring that out,” Hastings said, adding that he failed to see that larger percentages of the coveted 18-49-year-old demo were transitioning to connected televisions and away from linear TV — with advertisers in pursuit.

“We didn’t have to steal away the advertising revenue; in fact, it was pouring into connected TV,” he said. “And I wish we had flipped a few years earlier on it, but we’ll catch up, and in a couple of years we won’t remember when we started it.”

Netflix Launching Ad-Supported Streaming Service Nov. 3, Priced at $6.99 Monthly

Netflix Oct. 13 announced it is launching its much-anticipated ad-supported subscription streaming plan on Nov. 3. (9 a.m. PT) priced at $6.99 per month. That comes more than a month ahead of the Dec. 8 rollout of a rival ad-supported option at Disney+.

Netflix’s current basic plan without ads costs $9.99 monthly, with the standard plan priced at $15.49, and the premium option priced at $19.99. The streamer still offers its legacy by-mail DVD rentals, priced at $9.99 for one disc out at a time; $14.99 for two discs, and $19.99 for three discs rented concurrently.

The Netflix “Basic with Ads” service will be available in 12 countries, including the United States, Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, and the UK.

The new plan has a few differences from Netflix’s existing basic plan. Video quality will be limited to 720p/HD (now for both basic with ads and basic without ads plans); average of four to five minutes of ads per hour; a limited number of movies and TV shows won’t be available due to licensing restrictions, and no ability to download titles.

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Basic with Ads is everything people love about Netflix, at a lower price, with a few ads in-between,” Greg Peters, chief operating officer and chief product officer, wrote in a statement.

At launch, ads will be 15 or 30 seconds in length, which will play before and during shows and films. To help advertisers reach the right audience — and are more relevant for consumers — Netflix is offering broad targeting capabilities by country and genre (e.g., action, drama, romance, sci-fi). Advertisers will also be able to prevent their ads from appearing on content that might be inconsistent with their brand (i.e., sex, nudity or graphic violence). 

Netflix is partnering with DoubleVerify and Integral Ad Science to verify the viewability and traffic validity of its ads starting in Q1 2023. To enable advertisers to understand how Netflix can reach its target audience, Nielsen will use its Digital Ad Ratings (DAR) in the U.S. This will become available sometime in 2023 and eventually be reported through Nielsen ONE Ads.

“Basic with Ads will launch just six months after we first announced the option of a lower-priced ads plan,” wrote Peters. “While it’s still very early days, we’re pleased with the interest from both consumers and the advertising community — and couldn’t be more excited about what’s ahead. As we learn from and improve the experience, we expect to launch in more countries over time.”

Crackle Plus Series ‘In the Vault’ Tallies 3.4M Views

Crackle Plus, a Chicken Soup for the Soul Entertainment company and an operator of AVOD streaming services, announced its series “In the Vault” has garnered more than 3.4 million views since its premiere June 1, making it one of the most-watched new shows on Crackle, according to the service. 

The eight-part thriller series, starring Audrey Whitby, Claudia Lee, Anthony Granaderos and Sydney Sweeney, follows students at Woodlawn College, where a coed is killed at a campus party. The series focuses on the murdered student’s surviving dorm hallmates. Each individual possesses their own secret that may or may not serve as a motive for the dark deed that has taken place. No one is safe from the suspicions of others as each episode spotlights a different student as they move from being the protagonist one week to a suspect the next. 

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“We are so excited to see our audience responding to the fun nail-biting edge-of-your-seat thrill-fest that is ‘In the Vault,’” Jeff Meier, head of programming for Crackle Plus, said in a statement. “We thought this series would be a big hit, but the strong word of mouth and social buzz our fans are giving it exceeds even our wildest expectations.” 

Season two of the show will premiere as a Crackle Original later this year, with new cast members joining the student body of Woodlawn College. The plot thickens as the students continue to dig into the mystery of the previous season while fresh intrigue cries out from under the very ground on which they stand. 

Crackle Plus’ recent releases include the exclusive scripted series “Les Norton,” which stars Alexander Bertram and Rebel Wilson; the suspense thriller Blast; “Inside the Black Box,” hosted by Joe Morton; the sketch comedy series “Funny Girls”; and the award-winning BBC series “Sherlock,” starring Benedict Cumberbatch and Martin Freeman. Crackle Plus also recently announced season three of the multi-award-winning series “Going From Broke.”

The Crackle Plus streaming service is currently distributed through 85 touchpoints in the United States on platforms including Amazon Fire TV, RokuTV, Apple TV, Smart TVs (Samsung, LG, Vizio), gaming consoles (PS4 and Xbox One), Plex, iOS and Android mobile devices, and on desktop at Crackle.com.

Analyst Gives Thumbs-Up to Netflix Ads, Shrugs Off Account Sharing

Following the market’s outsized reaction to Netflix’s underwhelming first quarter results, including a net loss of 200,000 subscribers, the SVOD pioneer put in motion two initiatives designed to generate incremental revenue: Charging subs extra for sharing accounts and a less expensive ad-supported subscription plan.

Selling ads on the backs of Netflix’s 220 million global subscribers is being embraced by Wall Street as a legitimate revenue driver. Jason Bazinet, media analyst with Citi, believes the move could jumpstart subscriber growth and improve the fiscal bottom line.

“We believe an ad-based tier — which we expect in 2023 — will allow Netflix to resume sub growth and help narrow the ~$5 billion gap between [free cash flow] and net income,” Bazinet wrote in a note.

Citi analyst Jason Bazinet

Free cash remains a bone of contention among some Netflix analysts (notably Wedbush Securities’ Michael Pachter] who suggest the service spends too much money on content, among other costs.

Bazinet believes Netflix could generate $10 monthly from ad-supported U.S. subs and $3 monthly worldwide. The analyst says the ad-supported subscription plan could yield upwards of $3.6 billion in additional free cash flow from new subs, and $3.1 billion should existing subs downgrade to the estimated new $5.99 monthly ad-supported price point.

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“[This would] still generate incremental revenue from basic subs that spin down to a lower cost version,” Bazinet wrote.

The analyst doesn’t give much support to Netflix idea to charge existing subs an incremental fee when sharing account passwords. The concept is currently being tested in select markets globally.

The move is “unlikely to improve [churn] beyond current levels,” Bazinet wrote.

A separate report by The Information suggested Netflix could bump revenue up 21% with an ad-supported subscription option.