Netflix essentially killed every part of the conventional television business when it launched a streaming video service 15 years ago. But now that it’s facing an existential threat of its own from upstarts closing in on all sides, it’s borrowing from the playbook of its old rival to save itself: advertising.
Starting on Tuesday, Netflix will offer a version of its popular streaming service at a deeply discounted rate of $5.99 a month. But there’s a catch: Instead of the current subscription packages that allow users to endlessly and uninterruptedly binge on content to their heart’s content, the new no-frills version with a smaller content library will intersperse ads before, after and even during shows.
It’s a throwback to the commercial breaks that pay for the programming on conventional television.
It may seem odd to see the streaming industry come full circle — from being an alternative to cable TV packages that spliced 15 minutes of advertising into every hour of content, to reverting to a model that it eliminated.
But it’s a sign of how inflation and higher costs have inched into every part of the economy.
Sharing passwords a money loser
The streaming service is also taking steps to crack down on subscribers who share their passwords with friends, family and even co-workers — a routine practice but one that’s not allowed outside a household. Netflix didn’t seem to care much about password sharing, since the company was growing so fast it was confident that anyone who got a taste of its content for free would eventually sign up themselves.
But that started to change this year, as high inflation prompted consumers to keep a closer eye on their spending dollars, and the company posted back-to-back subscriber losses for the first time in its existence.
So in addition to raising prices for its ad-free subscriptions, Netflix will require subscribers to pay an extra fee if they want to share their password, starting in early 2023.
“They’re losing a lot of revenue, by all the shared accounts,” Vincent Georgie, director of the School of Creative Arts at the University of Windsor, in Windsor, Ont., said in an interview with CBC News.
“They don’t want to lose people altogether, they want to push them toward these lower-cost subscriptions.”
The ad-supported version of Netflix will cost $5.99 and only be available on one device, with no high-definition content. That’s different from ad-free versions that start at $9.99 a month and go all the way up to $21.99 for subscriptions with all the bells and whistles.
Georgie said the industry is on the cusp of major consolidation, because “the average consumer is not going to sustainably maintain two, three, four, five or six different streaming subscriptions.”
It’s no coincidence that Netflix is rolling out a cheaper ad-supported version just as millions of people who were using the service without a subscription are about to be blocked from doing so.
“If they’re able to capture 60 per cent of those users, that would be a nice uptick,” Georgie said.
Ads need to be special, exec says
While consumers rarely say they enjoy advertising, some in the industry say it doesn’t have to be that way, if done properly.
Deacon Webster, chief creative officer with the Walrus agency in New York City, said Netflix would be well served to make its ad offering stand out by eliminating such irritations as repeating the same ad multiple times, and making unique, well-done, expensive ads tailored to specific shows, which is what happens with the Super Bowl.
Unfortunately, Webster said, he doesn’t have the impression that’s what Netflix is planning to do.
Netflix’s Basic with Ads plan will give customers a less expensive membership option if they’re willing to put up with commercials. Experts say it’s an attempt to seduce price-conscious consumers back to the streaming service.
“They’re not having any special formats, they’re not allowing any special sponsorships,” he said in an interview. “They’re going to be bought just like typical advertising is bought across network and cable television so … it’s highly likely that you’re going to see the same ad over and over, no matter what Netflix tells you to the contrary.”
That’s disappointing to ad men like him, but for consumers like Hayley Markel, no amount of ads — even good ones — are appealing.
The resident of Leduc, Alta., has been a loyal Netflix subscriber for five years and said she has no interest in saving some money if it comes at the expense of being bombarded by more consumerism.”They’re loud, they’re kind of obnoxious,” she told CBC News in an interview. “I just can’t stand commercials.
“I’ll keep paying my regular price or a slightly increased price in order to not watch them,” she said.
Streaming companies and advertisers are banking on that not being a common view. In the United States, streaming giants such as HBO, NBC-backed Peacock and CBS-owned Paramount Plus have already introduced ad-supported versions, and Disney is planning to launch one soon.
In Canada, a new service called Pluto is slated to launch in December with more than 100 channels of free TV shows, movies and sports that stream “live” online on a platform that mimics the experience of channel surfing, complete with commercials.
Around the same time, CBC will introduce a revamped free streaming news channel that will be available on CBC Gem and multiple other streaming platforms. A flagship program hosted by Andrew Chang will be the main attraction, with advertisements interspersed throughout the day.
While there is skepticism among some, the University of Windsor’s Georgie said people should underestimate Netflix at their own peril, because the company has a track record of innovating and making rivals follow their lead.
“Netflix will survive, there’s no doubt in my mind,” he said, adding he even thinks it’s likely that some who sign up for the bare-bones ad version might quickly upgrade to more expensive versions with no ads, once they see their options.
If Netflix doesn’t find the right balance, its foray into borrowing TV’s business model could even lead to the return of another iconic television experience: the bathroom break.
“Ten minutes of Netflix commercials, I don’t know that I’ll be sitting there glued to my seat,” he joked. “I’d be sitting there but looking at other screens.”