It’s the beginning of the end for Netflix‘s lowest-cost plan that does not include advertising.
In reporting results for the fourth quarter of 2023, in which it added a better-than-expected 13.1 million net subscribers, Netflix touted its ad-supported plan as accounting for 40% of all Netflix sign-ups in markets where it has launched that, and said the number of subscribers on ad tiers grew almost 70% quarter-over-quarter. The company didn’t break out subscriber numbers but said it recently surpassed 23 million monthly active unique users on advertising tiers.
To drive more customers to the ad-supported plan, the company said it plans to retire the no-ads Basic plan in some of the countries where it has introduced the ad tier. That will start with Canada and the U.K. in the second quarter of 2024 and the company will be “taking it from there,” Netflix said in the Q4 shareholder letter.
On the Q4 earnings interview, co-CEO Greg Peters said the ad-supported tiers are designed to be a better overall value than the Basic plan. With the ad plan, customers “get a better plan than Basic, more streams, higher resolution with downloads. And of course, the real benefit is they get access to all these amazing stories at a lower effective price.”
Netflix still has “years of work ahead of us” before the advertising business becomes a material revenue contributor in the 12 markets where it has already launched, including the U.S., Peters said. “Our top ads priority… is scale,” he said, noting Netflix is continuing to work on improving ad targeting and ad relevance.
Peters, asked about Amazon’s decision to make ads in Prime Video the default setting (starting Jan. 29), said Netflix had at one point considered doing the same thing. But the company concluded that “given our long history of not having ads, we thought it was better for our members, rather than force them into a change and give them ads… to attract them to the ads plan for the ones that wanted it based on the benefits,” Peters said.
The move to fully phase out Netflix Basic comes after the company in 2023 stopped offering it to new subscribers in markets including the U.S., Canada and the U.K. Last fall, Netflix increased the price of the Basic plan from $9.99 to $11.99 per month in the U.S., and also hiked prices of the plan in the U.K. and France.
Netflix’s ad-supported plans currently are available in the U.S., U.K., Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico and Spain. The Netflix Basic With Ads tier launched in November 2022, priced in the U.S. at $6.99 per month — less than half the price of the Standard plan ($15.49 per month).
The company, as it has routinely said, noted that price increases are on the road map at some point in the future: “As we invest in and improve Netflix, we’ll occasionally ask our members to pay a little extra to reflect those improvements, which in turn helps drive the positive flywheel of additional investment to further improve and grow our service.”
