It appears that Netflix’s ad-supported tier is not generating the revenue the business anticipated, putting the streaming company in a less-than-stellar position for its future. The popular platform is now allowing advertisers to get their money back for ads that haven’t yet run, according to five agency executives. As of Monday, the company’s stock has fallen close to 10%, according to Digiday.
When the firm announced its first subscriber drop in over a decade this spring, Netflix CEO Reed Hastings changed his mind about the possibility of the streaming service housing advertisements. The firm introduced an ad-supported tier last month. The price is $6.99 per month, while an ad-free plan costs $9.99 per month in an effort to compensate for the loss, said the report on Digiday.
According to Digiday, Netflix has only delivered about 80% of the advertising audience they had anticipated, so it appears that the new feature is off to a slow start.
One of the agency’s executives said that the platform is unable to deliver because they don’t have enough inventory, and they have no other option but to give money back.
The structure employed by the streaming platform works on the pay-by-delivery system. Advertisers pay only for the viewers they successfully reach, and the rest is given back to them at the end of each quarter. Another executive explained that advertisers urged the platform to give them the money back now so they could reinvest it during holidays. Netflix agreed to do that.
Others, hoping for continued growth in viewership, have decided to postpone their advertisements until the first quarter of 2023.
Another executive made the decision to speak with Digiday. According to that person, there have been many methods they have dealt with missing delivery targets, and clients have different expectations for how problems should be resolved. The person concluded that not everyone wants money back at the end of a fiscal year.
Only two days after introducing the less expensive tier to the markets of Canada and Mexico, Netflix has made its new ad-supported plan, “Basic with Ads,” available to subscribers in the United States, the United Kingdom, France, Italy, Germany, Australia, Korea, Japan, and Brazil.
The streamer intended to compete with other significant streaming services that provide ad-supported alternatives, such as Hulu, Paramount+, HBO Max, and Peacock.
Those who choose this package will have to put up with 4 to 5 minutes of advertising every hour that will play before and during shows and movies. Ads last 15 to 30 seconds. However, new Netflix movies only receive pre-roll advertisements, so they will not be interrupted as frequently as older movies, which receive both midroll and pre-roll ads.
The Basic with Ads option provides 720p HD video quality. The viewers are allowed to stream from one device only. Ad-supported tier subscribers are not permitted to download items for offline viewing. However, the company indicated that due to license restrictions, just 5 to 10 percent of Netflix’s entire video library would be locked.
If Netflix does not come up with a more appealing plan for its members, the stock price may continue to fall.