Netflix aims to launch an ad-supported subscription model next year.
Ted Sarandos, co-CEO and chief content officer, acknowledged that Netflix is in discussions with some of its content providers on rights issues as the streamer plans its advertising-supported tier. According to industry practice, such a move would be considered a second-window event that typically comes with payments to studios and creative talent.
“The vast majority of what people watch on Netflix we can include in the ad-supported tier today. Some things we’re in conversations with studios on,” Sarandos said in the recorded earnings interview. “We will clear some additional content. Not all of it. I don’t think it’s a material hold-back to the business.”
Netflix CFO Spencer Neumann also downplayed the potential for higher costs to come with the ad expansion. “We can launch today without any content-clearance rights,” he said. Discussions are under way with outside partners but Neumann assured analysts, “We’ll be disciplined.” In the Q2 letter, Netflix said that Microsoft is “investing heavily to expand their multibillion [dollar] advertising business into premium television video, and we are thrilled to be working with such a strong global partner. We’re excited by the opportunity given the combination of our very engaged audience and high-quality content, which we think will attract premium CPMs [cost per thousand impressions] from brand advertisers.
The streamer added, “Our lower-priced advertising-supported offering will complement our existing plans, which will remain ad-free,” the company said in the letter. Worldwide, Netflix’s average revenue per member has grown at a 5% compound annual rate from 2013 to 2021, “so it makes sense now to give consumers a choice for a lower-priced option with advertisements, if they desire it.”
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