SAN FRANCISCO, United States — Netflix on Thursday
said a subscription option subsidized by ads will debut in November across a
dozen countries as the streaming service strives to jumpstart stalled growth.
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Netflix reported a loss of 970,000 subscribers in the second
quarter along with stagnant profits, and its share price is down 63 percent
from this time last year despite rising slightly on the ad-tier news.
The new "Basic with Ads" subscriptions will be
priced at $6.99 in the United States — three dollars less than a no-ads basic
option, Netflix chief operating officer
Greg Peters said in a briefing.
"The timing is great because we really are at this
pivotal moment in the entertainment industry and evolution of that
industry," Peters said. "Now streaming has surpassed both broadcast
and cable for total TV time in the United States."
The ad-discounted tier, a first for Netflix, will roll out
in Australia, Brazil, Britain, Canada, France, Germany, Italy, Japan, South
Korea, Mexico, Spain, and the United States. Video ads will be from 15 to 30
seconds long.
"We are looking at a very light ad load with no more
than four to five minutes of ads per hour, and including some very tight
frequency caps so that members don't see the same ad repeatedly," Peters
said.
After having shunned advertising since it started its
streaming service, Netflix has acquiesced as competition in the market
intensifies and as consumers recoil from soaring inflation.
With the launch of cheaper, ad-supported subscriptions,
Netflix and
Disney+ are expected to bite into the revenue of traditional
television channels.
Netflix rival Disney+ is expected to launch its own
ad-subsidized subscription soon.
"These launches are going to create the biggest premium
advertising space in more than a generation," said analytics company Samba
TV Senior Vice President Dallas Lawrence. "It's going to be a major moment
for advertisers."
Avoiding politics
Netflix has sold nearly all the ad space for the new tier
launch, President of Worldwide Advertising Jeremi Gorman said during the
briefing.
Advertisers will be able to target audiences based on
factors such as the country they live in as well as show genres or hit shows to
be part of "zeitgeist moments" on the platform, executives said.
Netflix will not take political ads, nor will it accept
marketing promoting smoking, guns, fireworks "or anything that feels like
a get-rich-quick scheme", Gorman added.
Advertisers will have options to avoid shows with sex,
nudity, or graphic violence, and Netflix is partnering with Neilson and
ad-traffic verification companies to provide data regarding how well messages
are reaching audiences, executives said.
"The new Netflix ad-supported tier will help the
streamer to staunch the bleeding of its subscriber totals, but it will pull
most users from the company’s existing user base instead of expanding the pool
of Netflix viewers," said Insider Intelligence forecasting analyst
Peter Newman.
Peters acknowledged the potential for Netflix subscribers to
switch to the lower-priced offering, but said the company expects that to be
offset by ad revenue plus an overall increase in the number of subscribers.
"We're not trying to steer people to one plan or the
other. We really want to take a pro-consumer approach and let them land on the
right plan for them," Peters said. "We think that the revenue model will
be fine as a result."
Netflix is continuing to invest in shows it believes will
attract — and keep — subscribers. Peters noted hits such as Stranger Things and
Extraordinary Attorney Woo and pending releases of keenly anticipated films
such as Glass Onion: A Knives Out Mystery.
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