Turns out Netflix makes more money if it just acts like regular TV
Streaming companies will let you watch ad-free, but it will cost you.
Netflix, the company that popularized ad-free streaming, would like you to join its ad tier now. So would every other online video service, from Disney to Max, all of which now have ad tiers. That’s because they make more money per user advertising goods to you than just by collecting your monthly subscription fees. Some streamers are even highly subsidizing their ad tiers to get you there.
That’s why the prices for their ad tiers are starting to look a lot more attractive than ones not trying to hawk you a new car or stuffed-crust pizza.
The chart below shows how big the gap has gotten. The prices for ad-free tiers (the green dots on the right) have been growing much faster than that of the ad tiers (blue dots on the left).
For example, last July Netflix axed its $9.99 ad-free plan in the US and put in its place a $6.99 ad option and a $15.49 ad-free option. So you could either pay less and deal with ads (a deal!) or pay more for essentially the same thing you had before — a sly piece of psychological maneuvering to push people toward the ad tier.
Last summer The Hollywood Reporter cited data from Hub Research, saying more than half of people said they’d choose ad-supported over ad-free platforms if it saved them $4-$5 a month.
Netflix is relatively new to the ads game but wants more of it.
“Our top ads priority — you've heard us say before, I think you'll hear us say it again — is scale,” Netflix Co-CEO Gregory Peters said during last quarter’s earnings call. “That means making the ads plan more attractive.” Those attractions include better pricing, as well as adding higher resolution and content downloads. Netflix is even offering the ad tier for free to customers of partners like T-Mobile.
It seems to be working: 40% of Netflix signups in markets where it’s available were for ad tiers last quarter. In a research note this month, Morgan Stanley predicted the ad tier to make up a quarter of subscribers in those markets by the end of 2027.
The same playbook goes for other streamers. Last summer, Hulu raised the price of its ad-free tier 20% while leaving the ad tier unchanged. Hulu is now charging $10 dollars more per month — a whopping $17.99 — to access the service without ads.
Amazon has been perhaps the most heavy-handed. Earlier this year, Amazon automatically started serving ads to its Prime Video customers, who typically watch the service as part of their Amazon Prime retail subscription. If you want to stop seeing ads you have to upgrade plans and pay an additional $2.99 per month. Morgan Stanley estimates that Prime Video ads could generate $3.3 billion in revenue this year, a number it says will more than double in 2026.
If you hate ads, there’s more bad news. Analysts expect Netflix to raise its prices again this year and it’s likely ad-free tiers will deal with the brunt of it. We’ll find out more during Netflix’s earnings Thursday.
If you don’t mind ads, these changes are probably good news for you! You get to mostly keep doing what you’re doing without paying much more.
The other good news is for ad buyers. Ad-industry publication Digiday calls 2024 the “start of the ad-supported streaming war.” The heightened competition among ad-supported streaming companies could lead to lower ad prices and better ad products for them.
