Netflix ads plan: Bad news for users in long term

Tl;DR: Netflix success with ads plan could mean a less worthy experience (more ads, less premium content available) for its ads plan users or a more expensive viewing experience (potential price increases for full paid plans) for paid users.

Netflix has launched an ads based plan tier. An ads based tier plan will allow more users to get entertained by Neftlix content, but in the long run it may not be good for users.

The plan is GBP 4.99 in UK. 

• Firstly, why a fee? Why not zero and be like youtube? Youtube even also allows to skip ads, which is not going to be an option here.Till now two competitive models have existed in the online video space - ads and subscription based. This has provided a clear opportunity for users to make a choice.

• Secondly, Netflix says an average of about 4 minutes of ads per hour. While this information is good for users to make a decision, things to note:
  

• This is an average - so you might see more, if Netflix is widely popular with advertisers. 

• Popular content, which most users will end up seeing, typically users will see more ads. 

• Advertisers too will want to show their ads on popular content more and would be willing to pay more. 

• Thirdly, some content in not available for ads tier
  

• Netflix has the power to release new and anticipated content on fully paid plans, leaving ads plan users dry. 

• While this is a great upgrade hook for Netflix, it is a bad experience for users. 

• Fourthly, privacy is secondary, if you are on ads plan
  
  

• Lastly, though this is an extreme scenario, assume for a moment that Netflix generates enough advertisers interest. This could make an ads plan more profitable for Netflix than some fully paid plan. This would allow Netflix to simply raise the prices of those paid plans, though they can also reduce the price of the ads plan. Though not a good benchmark competitor but successful in digital advertising, Google generated $40bn in Q3'22 from Search. Assuming 2bn users, it had ˜£$6 per user per month. If Netflix is widely successful on ads front, it would generate  £10.99 from ads plan, equal to their second highest standard plan. 

 

All of the above assumes Netflix has good success with advertisers, which remains to be seen. Overall, this pivot is the event that we should be keenly watching (hopefully without any ads or subscription requirement)