Post-Netflix AVOD Announcement: Everybody’s Got an Opinion

NEWS ANALYSIS — In the hours following Netflix’s announcement of an official debut date and pricing for its much-anticipated ad-supported subscription option was revealed, Wall Street analysts and media observers jumped upon the growing bandwagon of opinion on the news.

Netflix’s ad-supported tier is set to start Nov. 3 in 12 countries, and priced at $6.99 monthly in the United States.

“Netflix understands the streaming consumer incredibly well,” Ashwin Navin, co-founder/CEO of Samba TV, said in a statement. “The sweet spot for streamers looking to move to an ad-supported model is one that offers five minutes or less of advertising per hour and reduces the cost of their subscription by half. This new tier threads that needle nicely.”
Netflix’s first-mover advantage launching an ad-supported plan, comes more than a month ahead of a similar option on Disney+.
While Netflix will be able to better monetize existing subscribers transitioning to the lower-priced plan, industry estimates suggest 90% of current non-Netflix subs watch other ad-supported streaming content.
“This massive addressable market has no aversion to watching ads in exchange for free or reduced priced content and are prime candidates to turn to Netflix’s new ad-supported tier,” Navin said.
Michael Pachter, media analyst with Wedbush Securities in Los Angeles, said a recent company-conducted survey of Netflix subscribers found that the new ad-supported tier would keep them around the service.
“Our survey demonstrates that Netflix has an opportunity to limit churn in the coming months by offering its ad-supported tier to those looking to quit the service,” Pachter wrote in an Oct. 14 note. “In fact, of our respondents, those most likely to opt into the ad-supported tier are those who would have otherwise quit. The group of respondents that said they were unlikely to pause or cancel their subscriptions were much less likely to switch to ads.”
Analyst Brian White with the investment firm Monness, Crespi, Hardt, contends the announcement could reverse what has been a nightmare of fiscal year for Netflix. White, who believes Netflix added 1 million new subs in the third quarter (ended Sept. 30), says the new ad-supported tier will help the service adapt to a more challenging market.
“Although Netflix continues to deliver a strong slate of content, and the stock’s valuation has become unassuming after a sharp decline, the company’s business is under siege on multiple fronts,” White wrote in a note. “[Whether Netflix has] the time necessary to successfully monetize new initiatives is unclear, and we believe the darkest days of this economic downturn are ahead of us.”
In the U.K., where Netflix is also launching ad-supported service, Bridget Hall, planning director for the Americas at M&C Saatchi Performance, said the bar has been set high in online advertising and its ability to offer marketers targeted audiences.
“Advertisers expect robust targeting and advanced measurement for cross-device conversion tracking,” Hall wrote. “Initial speculation is that the Netflix CPMs are high, and the targeting may not be as advanced.”
Stefan Lederer, founder/CEO of Bitmovin, contends consumers won’t be as willing to pay for content with commercials.
“Our recent research suggests that in a paid subscription model, the majority (67% among 18- to 35-year-olds) would rather pay that little bit extra to remove ads,” Lederer said. “Most viewers (60%) are happy to tolerate ads when it comes to free streaming services, however it seems if paying for a subscription, no matter the cost, they expect ad-free content.”
Not so fast, says Tej Rekhi, VP product at Peach, who argues Netflix’s entrance into ad-supported content with significantly up the AVOD market profile among consumers.
“Netflix’s ad-supported tier has come at a really good time,” Rekhi wrote. “As consumers start to feel subscription fatigue, they now have an ad-funded model option for their wallets. This is going to accelerate the [connected TV]/AVOD landscape, creating bigger opportunities for more addressable content.”
Netflix reports third quarter (ended Sept. 30) fiscal results Oct. 18.