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  • Writer's pictureRussell Vilardi

Understanding Netflix's New Ad-Supported Subscription Tier

The subscription screen for the new ad-supported on Netflix.

Understanding Netflix's New Ad-Supported Subscription Tier

Have you heard about Netflix's new ad-supported subscription plan? Netflix is ready to join the ad-supported video game with its Basic with Ads services, priced several dollars below its traditional ad-free plans.

What does Netflix Basic with Ads offer viewers, and what does it lack? Why is Netflix creating an ad-supported tier, and what does it expect to gain from it? The ad-supported tier may be a great way for Netflix to stabilize and even grow its subscriber base—or it may cost the company overall revenue. Read on to learn our take on Netflix's Basic with Ads service.

Key Takeaways

  • Netflix is supplementing its traditional subscription services with a lower-priced Basic with Ads plan

  • Basic with Ads launches in November for$6.99/month with 4-5 minutes of advertising per hour

  • Netflix hopes to gain a significant share of video streaming advertising revenues, even though its plan lacks some basic features, such as full HD, multiple-device viewing, and video downloads

What Is Netflix's Basic with Ads?

Netflix is launching its new Basic with Ads subscription tier in the US on November 3. It's an ad-supported tier that supplements but does not replace Netflix's traditional ad-free tiers.

The Basic with Ads plan costs $6.99/month, which is $3 less than its $9.99 Basic no-ads tier. Other Netflix subscriptions run up to $19.99/month, meaning customers can save up to 65% per month just by accepting commercials as part of their viewing experience.

Netflix Basic with Ads, starting at $6.99/month.

How does Netflix's ad-supported tier compare to similar plans from competitors? It costs a little bit less per month, as you can see here:

  • Netflix Basic with Ads: $6.99/month

  • Hulu (with ads): $7.99/month

  • Disney+ (with ads): $7.99/month

  • HBO Max with Ads: $9.99/month

Netflix's new ad-supported tier will program between four and five minutes of 15- and 30-second commercials per hour. Ads will run both before and during the company's programming.

Another aspect that differentiates Basic with Ads from competing for advertising-supported video-on-demand (AVOD) services is that Netflix is not pairing ads with children's programming or new movies. Older movies and TV programs will have pre-and-mid-roll advertising, of course.

Why Is Netflix Offering an Ad-Supported Subscription Tier?

After fifteen years as the leading subscription video-on-demand (SVOD) service, Netflix's embrace of the AVOD model is a stunning about-face. The company made a name for itself as a commercial-free content provider, so adding a with-ads tier goes against the company's history and original operating philosophy.

The reason Netflix is suddenly embracing advertising is simple: AVOD is where all the growth is in streaming video today. Viewers are suffering from subscription overload and are looking to trim their monthly expenses. Research from Accenture reveals that almost two-thirds of consumers say they can't afford to pay for all the streaming video subscriptions they want. Some of the first cuts are high-priced streaming video subscriptions, such as Netflix.

Netflix is betting that rather than dropping their service altogether, many budget-conscious consumers will instead opt for the company's lower-priced ad-supported tier. They may not be willing to pay $15.49 for Netflix's Standard plan (or $19.99 for its highest-priced Premium tier) but may be able to afford $6.99 for Basic with Ads, even if they have to deal with commercial interruptions—which they're used to from viewing broadcast and cable TV anyway.

Analysts discuss Netflix's Basic with Ads launch.

Will Netflix Basic with Ads Be Successful?

It's unclear how subscribers will react to Netflix's new ad-supported subscription. It's possible that the company will see many of its currently high-priced tier subscribers downgrading to the lower-priced with-ads plan, which could significantly affect Netflix's subscription revenue.

That's a risk that may be worth taking. Netflix stands to gain a substantial new source of revenue through advertising. The company says it has hundreds of advertisers already lined up and has almost sold out its initial ad inventory.

There's certainly money to make in OTT advertising. Digital TV Research says global AVOD revenues hit $33 billion in 2021 and are expected to surpass $70 billion by 2027. Netflix hopes to get a significant share of that money.

Netflix believes that customers switching to the lower-priced tier will have little effect on its revenue, with new ad revenue easily supplanting lost subscription revenue. This way of thinking implies that Netflix expects to generate at least $3 per user in advertising revenue.

Some analysts believe that adding the lower-priced tier might hurt the company's revenue, although it could help them grow its subscriber base. In contrast, Netflix CEO Greg Peters says he doesn't think the new plan will cannibalize the company's existing business, instead producing "significant incremental revenue and profit" in the long term.

Netflix Basic with Ads Is Really Basic—No Video Downloads and Lower Video Quality

In addition to including commercials, Netflix Basic with Ads truly is a basic service. Like its $9.99/month ad-free Basic tier, Basic with Ads is limited to just 720p HD resolution instead of the 1080p HD available with its $15.49/month Standard plan and 4K Ultra HD video with the $19.99/month Premium plan. Users on the Basic with Ads plan can only view on one device at a time, compared to the two- or four-device availability with the Standard and Premium plans, respectively.

Comparing Netflix’s subscription plans.

Basic with Ads also won't offer all the programming available with Netflix's other plans. Due to licensing restrictions, many movies and TV shows can't be shown with commercials, making them unavailable to subscribers of the new low-cost tier. (Netflix says this may affect up to 10% of its current content.)

Another feature missing from Basic with Ads is the ability to download programs to mobile devices for offline viewing. Video downloading is a common and popular feature with most SVOD services, although not all AVOD providers offer the download capability.

Downloads Build Customer Loyalty

Excluding downloads from its new Basic with Ads tier may not be a smart business decision on Netflix's part. Customers want to download programming to watch when they're on the go or away from a stable internet connection, such as when traveling or commuting. Many viewers prefer downloading because it's more reliable than some streaming connections.

Penthera's U.S. Mobile Streaming Behavior Survey reveals that more than half (59%) of viewers expect video providers to offer downloads. About a third (34%) said they're more likely to watch content from services that offer downloading. With this demand, Netflix risks losing many viewers who want downloadable content.

Penthera offers its Penthera Download solution to OTT providers including ad-supported content. Penthera Download seamlessly integrates with existing streaming video apps and offers the fastest download speeds for users on all devices. It provides reliable downloading, using existing streaming assets, that improves the viewer experience without costing the publisher additional money for storage or delivery of download-specific assets.

Contact Penthera today to learn more about how Penthera Download for AVOD and SVOD providers.


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