The day is finally here: Netflix with ads has arrived in the U.S., and for people looking for a cheaper option to stream, it may give them the push to stay subscribed to the streaming giant.
"There appears to be a real desire from a significant set of the population for a Netflix ad model," said Dallas Lawrence, Samba TV head of communications and brand. "Less than half of U.S. households subscribe to Netflix today, and when you look at the viewing patterns of those non-Netflix subscribers, what you see is that they watch a lot of advertising-supported streaming content."
Netflix added its ad-supported tier in the U.S. on Thursday, starting at $7. By 2024, advertising revenue is expected to reach $1.02 billion, per Insider Intelligence. Ads will total 4 to 5 minutes per hour and run 15 seconds to 30 seconds each.
According to a survey from adverting tech platform LoopMe, about one out of four streaming subscribers who have canceled a subscription said affordability was an issue. But 31 percent of people said they would cancel their Netflix subscription if ads appeared. Another 35 percent said they would be okay with ads as long as it came with a cheaper price tag.
"As Netflix holds a majority of streamers' attention, marketers would love a way to connect directly with those viewers, so from that perspective, there is a need for an ad-supported tier," said Rob Cukierman, LoopMe general manager of measurement and partnerships. "Based on our recent research, consumers would be open to this if it lowered costs to subscribe. It's a win for both consumers and marketers to have this option within a leader in streaming."
But Insider Intelligence principal analyst Ross Benes disagrees that this decision is to give customers more choice. It's more for brands itching to be on Netflix, he said.
"Consumers sure don't need it - but advertisers are into it," Benes said. "Netflix sees a need because subscriber growth stalled and they have to do something else to appease investors."
With more streaming platforms adding ads, it will increase competition in the marketplace for those marketing budgets. That's not necessarily a bad thing.
"Having more AVOD (ad-based video-on-demand) services is better for all," LoopMe's Cukierman said.
"The questions will be: how will those ads be created? Will Netflix create bespoke ad units or use standard TV ad spots — i.e., 15, 30 sec spots?" Cukierman continued. "As marketers are looking for standard ways to measure reach, frequency, and outcomes, Netflix's offerings in the market will be critical to the creation of more standardization on measurement in TV."
But those ad dollars may be shrinking. According to a recent Digiday survey, 34 percent of advertising agencies said they were increasing budgets, and 31 percent said they were keeping similar levels through 2022.
Still, there's plenty of room for all platforms to take a piece of the pie. About 92 percent of non-Netflix streaming viewers watch an ad-supported service already, according to Samba TV.
"Consumers are telling us they are not gong to replace their current $100 cable bill with $100 in streaming subscriptions," Samba's Lawrence explained. "The average adult reports having just two, and they are very comfortable cycling through those, canceling each month, and moving to new platforms to watch a desired show."
"While they cycle through the major subscription services, they are building a foundation of always on content with FAST (free, ad supported TV) services," Lawrence continued. "We are still in the very early innings of the streaming decade and there is plenty of room for everyone to grow."
Updated with a correction to the company name "LoopMe."