Written by Brenda Nakalema

Netflix To Offer Cheaper Ad-Supported Plan

Netflix is currently working on offering a cheaper Ad-supported plan to its dwindling subscriber base. The main aim is to …

Netflix is currently working on offering a cheaper Ad-supported plan to its dwindling subscriber base. The main aim is to maintain its price-conscious customers while attracting new ones. However, the Street remains divided on whether this new strategy will actually yield the results the streaming platform hopes to achieve.

Shares of Netflix (ticker: NFLX) have tumbled 63% year to date, with the stock gain just 2.5% on Wednesday.

The company made the decision to offer a cheaper option for its streaming services after losing 200,000 viewers in the March quarter, with the June-quarter loss being just under one million viewers. The new tier will most likely launch early next year. Currently, all three monthly plans- basic for $9.99, standard for $15.49, and premium for $19.99 are all ad-free options.

According to Macquarie, Research analyst Tim Nollen foresees great potential in the ad-free approach. In a research note on Wednesday, he estimated Netflix might generate upwards of $3.6 billion in ad sales in both the U.S and Canada by 2025.

“The trick for Netflix will be to incentivize enough viewers to opt for the ad-supported platform through the new tier price to generate the large audiences that advertisers want while ensuring that the ad revenue it generates more than offsets the foregone ad-free subscriber revenue,” Nollen wrote. “We think if Netflix gets this balance right, the company can enjoy higher [average revenue per user] on ad-tier subs, driving higher revenue overall.”

Nollan also upgraded his rating from Underperform to Neutral and raised his 12-month price target from $170 to $230. However, others don’t seem to share in Nollan’s enthusiasm- Bank of America analyst Nat Schindler maintained his underperform rating with a price target of $196.

Schindler wrote in a research note, “any potential realized benefits from the company’s advertising initiatives remain several quarters off, at a minimum.”

“[Netflix] is a premium service that will be offering a lower priced ad-supported tier that means it needs to make up lost subscription revenue before getting incremental revenue from advertising,” he wrote. “If the company starts with a relatively low ad load, it will incentivize people to trade down, decreasing sub revenue even more.”


This might also interest you: