Netflix’s plan to avoid TV-like adpocalypse
Netflix is finely tuning its cheaper ad-supported plans to ensure they don’t end up like linear TV, which became infamous for bombarding viewers with long, loud ad breaks.
Aside from content being available on demand instead of broadcasted according to a schedule, a major part of Netflix and other video streaming services’ appeal over TV in their early years was that they had no commercial breaks.
Advertising has been a key part of TV broadcasting for decades, making the companies profitable and funding the content users watch.
Private satellite broadcasters like DStv, Sky, and Canal+ and US cable TV broadcasters took things a step further by adding subscription fees. This enabled them to offer a wider range of content while having an extra source of revenue.
With Netflix, the initial revenue stream was subscriptions, but these were generally much more affordable than linear TV services.
Stunted user growth drives need for more affordable plans
However, Netflix’s user growth began to hit a ceiling after a once-off surge in subscribers driven by the Covid-19 pandemic.
This was partially due to intensified streaming competition, which increased subscriber churn between services.
It was also because the addressable market had become smaller, and Netflix had increased its prices substantially in countries like the US over the past few years.
Netflix needed to come up with a way to reach consumers who either could not afford or weren’t willing to pay for a full subscription.
To keep such packages profitable, it introduced a cheaper Basic with Ads plan that provided advertising spaces for companies interested in reaching the Netflix customer base.
Netflix is not alone in this approach, Disney+, HBO’s Max, Paramount Plus, and Peacock have done the same.
This trend has raised concerns among users that the streaming experience could move towards being very similar to linear TV.
While Netflix’s ad-supported plans are currently only available in 12 countries, excluding South Africa, it is still learning from their popularity and is investigating other markets where the option could be made available.
While South African Netflix subscribers have an ad-free Basic and mobile-only plan available for cheaper than a Standard plan, elsewhere in the world, the streaming service only offers a Basic with Ads plan.
Speaking during a media roundtable on Tuesday, 23 February 2024, Netflix chief product officer Eunice Kim said that the company was “incredibly sensitive” about ensuring the user experience does not become like the old days of traditional TV broadcasting.
However, Kim maintained that connected TV services and streaming were just in a “different space” than linear TV,
“Not only do we not want it to be the same experience, but we don’t think it can be the same experience.”
Firstly, Kim said content and ad personalisation were possible on streaming services.
“There is a degree of personalisation and relevance in a connected TV experience that you could never have had in a linear TV experience,” she said.
“In a linear experience, for the most part, the same ads are being shown to everyone, whereas here these are personal ads, and we think we can make them more relevant.”
“Relevant ads improve the user experience, so it is something we want to be incredibly good at.”
Eunice Kim, Netflix chief product officer
Kim emphasised that Netflix’s ads strategy and personalisation were still fairly nascent.
“This is an area that we think of ourselves as being literally at the very beginning of the journey with lots of room to improve the experience for our users over time,” she explained.
As it stands, ad personalisation is based on the user’s viewing history and basic demographic information collected during sign-up.
Currently, the latter is limited to date of birth and gender. Netflix also uses general location information that could be determined from a user’s IP address.
“We do try to make sure that these are all tightly constrained from a data privacy perspective inside the service,” Kim said.
Fewer ads than linear TV
Another important difference with Netflix’s ads is that they are substantially fewer than on linear TV.
Kim said that Netflix serves an average of about four to five minutes of unskippable ads every hour, compared to the typical 20 minutes of ad breaks in linear TV.
These are presented before and during select TV shows and movies. For newly-released movies, ads are limited to before the title begins — similar to what is offered in cinemas.
During ad breaks, Netflix also shows the user how many ads will be shown during an ad break in the upper-right corner of the screen.
Kim added that Netflix also believed it could make ads more integrated into the Netflix experience and less jarring over time.
Basic with Ads isis already showing ads throughout the home interface, in between movies and TV shows.
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