Netflix enters new era with ads on platform for first time
"Never" turned to "now" on Thursday, when Netflix rolled out ads on its platform after years of saying it wouldn't.
Why it matters: The timing is terrible, but the company needs to keep attracting new customers amid greater competition.
- Netflix is not only vying for marketing dollars against other major streaming media platforms, but also against just about every other company out there now getting into ads — grocers, ride-hailing apps, hotels, and even Microsoft, Apple and Amazon.
- At the same time, advertisers have been pulling back as they watch the economy and consumer spending more closely.
Driving the news: Netflix launched a new subscription tier called "Basic With Ads" midday today in the U.S. and eight other countries.
- At $6.99 a month, the option costs $3 less than its cheapest ad-free tier and $1 less than Hulu's cheapest ad-supported plan.
- There will be four to five minutes of ads per hour, which appears to be about average for other major streamers.
The big picture: Netflix appeared to have rushed to make its ad-supported tier available to get ahead of Disney, which plans to launch its own first-ever ad-supported option for Disney+ on Dec. 8.
- Both will now compete against Hulu, NBCU's Peacock, Paramount+ and Roku, as ad spend slows.
What they're saying: There's also still skepticism about how well they're going to be able to pull it off, Jamie Lumley, an analyst from Third Bridge, tells Axios.
- Other players, such as Peacock, have already had a head start, he adds.
What to watch: Whether Netflix changes it content strategy for ad-supported customers and how it continues to crackdown on password sharing to recover revenue.
- Netflix's stock is down some 55% so far this year.
- In a research note last month, Goldman Sachs analysts concluded, "any successful execution on those initiatives [would] likely cause Netflix to sustain its recent reversal of pronounced stock underperformance."