🤷♀️ Netflix's Ad-Plan: A Nightmare?
Netflix is introducing a cheaper ad-based plan to attract more users. But this could not only reduce the company's revenue but create problems for all of us. Here's how.
For most millennials and Gen Z, TVs are a relic of the past.
We're usually streaming content on the go (or binge watching), so we neither have the time to watch TV nor the patience to suffer through ads every 5 minutes.
No wonder we love streaming platforms!
But this party may soon be over, thanks to Netflix and Microsoft's partnership.
😥 Netflix and No Chill
Netflix has been having a tough time in the streaming space.
It lost over 200,000 subscribers in its first quarter of the year and has been witnessing its slowest growth ever.
How come the OG streaming giant is facing this issue?
Competition. For quite some time Netflix maintained a monopoly over the streaming markets but now new and more niche streaming sites have come up and snatched Netflix's streaming share.
Plus, Netflix's subscription price is one of the most expensive ones out there.
Not to mention a massive number of us don't subscribe to Netflix when we want to watch exclusive shows. We just end up borrowing someone else's password (You can read more about this here).
All of this is majorly weighing on Netflix's bottomline (its profits).
And even after reducing prices in India, the company couldn't convince us to buy its subscription.
So, it has now come up with a new plan.
Launching an even cheaper subscription model which will feature ads.
This way Netflix will be able to attract more users without losing money. In fact, this will also create a new revenue stream for it.
To launch this ad-based subscription plan, Netflix has tied up with Microsoft.
Why Microsoft? Microsoft isn't traditionally the first name you would think of when it comes to advertising.
Yes, but the company does have a strong advertising business which earned $10 billion in revenue last year.
Plus, it owns Xandr, an adtech company that automates selling and serving ads on a global basis.
The best part about Xandr is that it customises ads based on the user's location. So, both you and an American can be watching 'Squid Game' at the same time, but you'll both see different ads.
And most importantly, unlike Google and other advertising platforms, Microsoft doesn't own a competing streaming service.
So, it was the obvious choice.
The news saw Netflix's shares, which were down 71% for the year, gain again.
Does this mean all of Netflix's sorrows are over?
Hardly. With the launch of a new ad-based model, the company has opened up a whole new can of worms.
📽️ The Ad Problem
For 25 years Netflix had maintained its ad-free stance.
So, the directors, producers and actors that worked with Netflix knew that their artistic prowess won't be interrupted by say a detergent ad.
Convincing them to allow their work to now be punctuated with ads will be a difficult task.
And even if they don't mind being interrupted, figuring out how and when to introduce an ad in a show that was created for streaming will be a major issue.
For instance, if you look at old TV shows like 'Friends', they will have regular breaks in between two scenes where an ad can be seamlessly plugged in.
Because the show was created for TV.
But a show like 'Stranger Things' may not have such breaks and figuring out where to introduce them could be a major headache.
And Netflix needs to be careful with this as too many ads abruptly interrupting scenes could put off users.
That's not all. The new plan brings forth a lot of questions. For instance, will directors get to pick or veto the ads added in their shows or movies. Will producers get a cut of the ad revenue? And will Netflix's existing licensing deals even allow ads to be inserted in existing shows?
Not to mention, the move could bring down Netflix's revenue significantly. Huh? How?
You see, analysts at Wells Fargo have predicted that the ad-supported cheaper model will attract over 100 million subscribers by the end of 2025.
But the catch is that only 16 million of these subscribers will be new.
The rest will be old subscribers looking for a cheaper plan.
So Netflix could in fact be digging its own grave by launching this plan.
However, other analysts project that the move could help it earn anywhere from $1 billion-$3 billion in additional revenue each year.
But whether Netflix swims or sinks, it has created a major hassle for all of us.
Over the years streaming platforms, even the ones that did support ads, had mainly kept ads to a minimum.
But now with Netflix also entering the ad game, we will probably be seeing a barrage of ads.
While for many this could be a good deal, seeing as they can watch previously inaccessible content for cheaper, it could promote others to just go for pirated content.
After all, if I have to suffer through ads, why should I pay for the content? Why not just torrent it?
So, you see, there are a lot of ifs and buts attached to this move. We'll have to wait and watch how it plays out for Netflix and what other players do to compete with the giant.
⚡In a line: Netflix is introducing an ad plan to attract customers and boost revenue but it may end up having the opposite effect.
💡Quick question: Will you be buying Netflix's ad-based plan?
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