Netflix is apparently cutting its lowest-cost, advertisement-free tier in select markets, a move that comes as streaming platforms look to drive more revenue per subscriber both through ad sales and price increases.
The streaming platform, which has already made its Basic plan unavailable for new and rejoining members in the U.S., Canada and the United Kingdom, is apparently going further than that.
“The ads plan now accounts for 40% of all Netflix sign-ups in our ads markets and we’re looking to retire our Basic plan in some of our ads countries, starting with Canada and the UK in Q2 and taking it from there,” the company stated in a letter to shareholders accompanying its fourth-quarter 2023 earnings results.
The move comes as, long-term, the streaming giant looks to its advertising sales to drive revenue, even as this part of the business is not the company’s focus in the immediate future.
“Ads won’t be a primary driver in ’24,” Netflix CFO Spence Neumann stated on a call with analysts discussing the streaming service’s financial results. “When we look [to the next few] years … we’re focused on continually improving our service. If we do that well, we’ll have more members, we’re of more value that we can occasionally price into, and lots of engagement to build a big and profitable ads business.”
Indeed, across the industry, leading players are looking to drive revenue per user with new advertiser opportunities and with increased prices. Amazon Prime Video, for instance, is about to implement a new $2.99/month charge for ad-free viewing, otherwise integrating advertisement breaks into its content — an opportunity that reportedly amounts to nearly $5 billion for the streaming service.
Consumers, for their part, are feeling the burden of their cumulative streaming spending. The PYMNTS Intelligence report “New Reality Check: The Paycheck-to-Paycheck Report — The Nonessential Spending Deep Dive Edition,” created in collaboration with LendingClub, which drew from a survey of more than 3,400 U.S. consumers, found that 25% of respondents reported that they spend indulgently on streaming service. Plus, financially struggling consumers were the most likely to say that their spending in the category has been indulgent.
In fact, faced with the challenges of paying all these bills, many consumers cut back. PYMNTS Intelligence’s study “The One-Stop Bill Pay Playbook: Drivers of Consumers’ Bill Payment Priorities,” which drew from a survey of more than 2,100 U.S. consumers, found that the majority (55%) would cancel streaming subscriptions if they needed to reduce the bills they received each month. This marks a greater share than said the same of any other recurring bill.
As streaming platforms seek to strike a balance between generating revenue and retaining subscribers, the industry is witnessing significant shifts in pricing strategies and ad integration. The future will likely see a continued focus on improving services and engaging members, with the potential for further profit from ads businesses on the horizon.