Back in October, Netflix’s announcement that it would be introducing an ad-funded tier shook (if not surprised) the SVOD world. Previously laser-focused on never straying from the subscription model, economic uncertainty, and a downward trajectory in new subscriber growth pushed the company and other major SVOD services (including Disney+) to reconsider their revenue and growth strategy.
Saturation and price sensitivity
During the Future of TV Advertising Global in December, the research company Ampere Analysis outlined what it means for the industry as SVOD majors move into ad-funded tiers. Taking Netflix as an example, Richard Broughton, Research Director at Ampere Analysis, highlighted that global subscriber base growth year-on-year (YoY) dropped from 30% in 2015 to 4% in 2022 — a trend that is being witnessed by many video streaming services.
While increasing levels of competition continue to shape the market, one of the main factors influencing this shift, Broughton explains, is price. “When we look at sign-up and cancellation patterns among different subscriber bases, the main driver is price […] we found that the people who were leaving weren’t necessarily going to competitors, they were just looking at the price and thinking ‘that’s a bit steep, I can’t afford that’.”
Enter the ‘basic’ account’, a response to both consumer and business needs. But what does this mean for marketers? “The ad-tier is available to markets representing 70% of the global subscriber base,” noted Broughton, pointing out that “these are the larger, wealthier markets that Netflix operates in” – a good sign, from an advertising perspective.
Although the general level of discount is roughly $2-3 in most markets, there are differences between tiers that correspond with local levels of ad sensitivity: “If you’re in markets where consumers are more ad-tolerant, like Brazil, you get a lower discount – conversely in markets like Germany and Australia, where we see high levels of ad resistance, there’s a bigger incentive to take the basic tier.”
Unlocking new audiences
In general, the ad load is to be kept low, at 4-5 minutes per hour. While this may not seem like much compared to some broadcast TV ad loads, there’s no doubt advertisers will still be excited at the prospect of working with Netflix, especially considering the streaming giant has now unlocked a pool of consumers which, according to Broughton’s estimates, equates to “up to 34 million homes and 80 million people, or about 15% of subscribers”.
Since these audiences can be quite hard to reach via traditional media, this presents new opportunities for advertisers across the board, who now have the option to integrate ad-tiered SVOD into their media mix.
A path to sustained growth
Netflix’s turn to an ad-funded model — soon to be followed by Disney+ — marks the beginning of a shift in SVOD consumption. While global lockdowns drove a surge in TV screen time and streaming in the UK and beyond, there is now a fierce battle for attention against a backdrop of tighter household budgets.
Providing more affordable plans for viewers while keeping ad-load down is how streaming platforms such as Netflix reckon they can maintain revenue growth, driving their appeal to advertisers and consumers alike.