Netflix impresses market with new ad-backed streaming plan

(Alliance News) - The market liked Netflix Inc's new streaming plan, which knocks a few pounds off the monthly bill, but at the expense of a few minutes of adverts.

Netflix's ad-supported plan will be priced at GBP4.99, a fraction of its Premium offering which costs some GBP16 a month.

It is hope the new 'Basic with ads' offer will attract those that are tightening purse strings amid a cost of living crisis. It launches in 12 countries initially, the UK included.

Netflix shares surged 5.3% to USD232.51 each in New York on Thursday. The market liked what it saw.

The streaming service hopes advertisers will too.

"In short, Basic with Ads is everything people love about Netflix, at a lower price, with a few ads in-between," Netflix said.

"Basic with Ads also represents an exciting opportunity for advertisers - the chance to reach a diverse audience, including younger viewers who increasingly don't watch linear TV, in a premium environment with a seamless, high-resolution ads experience."

The adverts will be about 15 to 30 seconds long. Netflix envisages about four to five minutes of ad per hour. They will play before and during shows. They will also be targeted. Advertisers would not see their products displayed before content which "might be inconsistent with their brand".

"If the current market backdrop isn't stimulating enough, investors are certainly sitting back with the popcorn watching Netflix with interest," AJ Bell analyst Russ Mould commented.

Mould added that keeping subscribers with a lower price plan is currently much better than losing them altogether. The move comes with risks, however, particularly when economic conditions pick up again.

"That's fine during hard times, but when the global economy is starting to look stronger Netflix will almost certainly want to get more money out of its customers. It's easy to get hooked on a diet of discounts and customers might not find the advertisements before a show or film too distracting, so there is a risk that they stay on the lowest subscription package permanently," Mould added.

One thing the new service might discourage a viewer to do, is share an account. Content can only be viewed on one screen at a time. Account sharing has hung over Netflix for many a year, potentially keeping a lid on its top-line growth as some would prefer to split the monthly bill with family or friends, instead of going on their own.

Analysts at UBS commented: "A single stream could limit the plans attractiveness (Netflix's standard plan with multiple streams is the most popular today) but we believe new ad tiers with features more akin to the premium plans could eventually be introduced."

Aside from not allowing for multiple viewing, the Basic with Ads plan also has some TV shows and films unavailable. In addition, viewers are unable to download content for offline viewing.

Looking ahead, UBS expects the plan to go down a winner, boosting revenue by up to 10%. However, "this uplift will likely be seen over multiple years".

UBS believes Netflix's upcoming 2023 financial year will be a "transition year" and stacked with foreign exchange pressures the new ad-backed offering will be unable to offset.

For 2022, meanwhile, UBS expects Netflix to report net profit of USD4.63 billion, down 9.5% from USD5.12 billion in 2021.

For 2023, the Swiss bank lifted its net subscriber additions forecast to 13.2 million, from the previous 9.5 million prediction. It has lowered its revenue forecast by about 1% to USD33.21 billion due to foreign exchange pressure.

By Eric Cunha; [email protected]

Copyright 2022 Alliance News Limited. All Rights Reserved.