Why Netflix Just Murdered Its Cheapest Ad-Free Plan
This would probably be a good time for IndieWire staff to buy Powerball tickets (a $1 billion jackpot!): As we predicted last year would happen, Netflix just scrapped its cheapest ad-free tier “for new or rejoining members” in the U.S. as well as the UK. That means current subscribers to that “Basic” tier can remain with the plan until they choose to select another one or cancel their Netflix account.
The same shift happened about a month ago in Canada; Netflix’s changes often trickle down through our northern border.
The issue was economics. Netflix wants to steer subscribers to either its “Standard with Ads” plan, which starts at $6.99 in the U.S. and £4.99 in the UK, or its commercial-free “Standard” plan. That one costs $15.49 per month in the U.S. and £10.99 in the UK, and it’s the one you probably have.
“Standard with Ads” lacks what Netflix qualifies as “a few movies and TV shows” vs. the pricier tiers. It allows a household to stream on two devices at once in “Full HD.” Mobile-gaming use is unlimited, but let’s be honest, nobody does that anyway.
The ad-free version has all that stuff sans commercials, includes the missing shows and movies, and adds the ability to download on two supported devices at a time. The tier also introduces the option to add an (read: one) extra member who does not live in the same home for $7.99 per month.
Netflix also offers a “Premium” plan for $19.99 (£15.99) per month. “Premium” is for the techies and families with bigger kids. It adds spatial audio and Ultra HD, and comes with the ability to watch simultaneously on four devices and download onto six. It also presents the option for a household to add up to two outside users at $7.99 apiece.
Each of the three remaining plans offers greater potential ARPU (average revenue per user) to Netflix than “Basic” did, and there is still a cheap entry point for consumers. Even at $6.99, the inexpensive “Standard with Ads” plan brings in more than not just the $9.99-per-month tier, R.I.P., but also the $15.49 one, Netflix has touted. The advertisers (more than) make up the difference; the equity analysts at bank Wells Fargo estimate Netflix will pull in $15.40-$16 total each month, per ad-tier user, in the U.S. and Canada this year.
In September, this reporter wrote that four tiers felt “like one too many,” and that the “distinctions between [Basic and Basic with Ads] in both price and features” didn’t “feel aligned with the jumps to the streamer’s higher-level tiers.”
At the time, media analysts expressed concerns about “Basic with Ads” cannibalizing the ad-free version. As it turns out, we were both quite prescient.
From the get-go, Netflix co-CEO Greg Peters predicted subscribers to his new ad tier will have a “neutral to positive” impact on revenue vs. those on the ad-free plan. Wall Street agreed: since the November 3, 2022 U.S. launch of “Basic with Ads,” the price of Netflix shares (NFLX) have more than doubled to nearly $480 today. The company’s password-sharing crackdown, which first rolled out in the states in May, helped that surge.
Peters and his fellow Netflix senior executives wil reveal the company’s second-quarter earnings (and subscriber growth) this afternoon. A video interview with the streamer’s top brass will be posted to YouTube at 6 p.m. ET.