[Asia Economy Reporter Oh Su-yeon] Recently, Netflix's stock price fluctuated ahead of the introduction of its ad-supported subscription plan. This is because there are expectations that introducing an affordable ad-supported plan could significantly expand its subscriber base amid ongoing subscriber declines. Leading players in the OTT industry are considering the ad-supported plan as a card to improve profitability.
According to industry sources on the 18th, the Wall Street Journal (WSJ) reported that the number of subscribers to Netflix's upcoming ad-supported plan is expected to reach 40 million by the third quarter of next year.
Following this report, Netflix's stock price alone rose on the 15th and 16th. While the Nasdaq index was declining and major big tech companies' stock prices were falling one after another, Netflix, in contrast, rose 5.02% and 2.02% over two days.
According to WSJ, Netflix expects that by launching the ad-supported plan, it could secure an additional 4.4 million subscribers (1.1 million in the U.S.) by the end of this year and 40 million (13.3 million in the U.S.) by the third quarter of next year. This forecast is based on analysis of more than 10 countries, including South Korea, Brazil, Japan, the United Kingdom, Mexico, and France.
Earlier, Netflix announced in a shareholder letter in July that it would launch a new ad-supported service early next year. Subsequently, WSJ reported, citing advertising industry insiders, that Netflix plans to launch the ad-supported plan in November, ahead of the original schedule.
Bloomberg reported that Netflix is considering pricing the ad-supported plan at $7 to $9 per month (approximately 9,730 to 12,510 KRW).
Disney plans to launch a Disney+ ad-supported plan in December at $7.99 per month (approximately 11,106 KRW). It will convert the existing plan into an ad-supported plan, and increase the price of the ad-free Disney+ by $3 to offer a "Disney+ Premium" plan at $10.99 per month (approximately 15,276 KRW), which can be seen as a de facto price increase.
Bob Chapek, CEO of The Walt Disney Company, recently participated in Goldman Sachs' Communacopia+ Technology Conference 2022 and commented on these pricing changes, saying, "We think the price is too low compared to the value we provide," and added, "Advertising will allow us to meet diverse consumer needs."
The reason why the two major OTT platforms are considering introducing ad-supported plans is due to subscriber decline and worsening profitability. Netflix recently experienced a subscriber decline for the first time in 11 years. In the first quarter, it lost 200,000 subscribers, and in the second quarter, it lost 970,000 subscribers, recording 220.7 million subscribers.
Disney's combined OTT subscribers (Disney+, Hulu, ESPN+) surpassed Netflix with 221.1 million, but in the fiscal third-quarter earnings announcement, Disney+ reported a 5% decrease in average revenue per user.
In a business model relying solely on subscriptions, a decrease in subscribers or average revenue per user causes significant impact. By offering an affordable ad-supported plan, the burden on subscribers is reduced while discovering new revenue models.
Some predict that there may be psychological resistance from consumers to the introduction of ad-supported plans. However, many companies have already successfully established such plans in the global market. Hulu announced in 2019 that 70% of its subscribers use the ad-supported plan. Paramount+, Peacock, and HBO Max also already offer ad-supported plans. Additionally, OTT platforms generally have shorter ad times per content compared to traditional broadcast advertising. A media industry insider said, "For example, Netflix plans to provide 4 minutes of ads for a 1-hour content, which is much shorter than average TV ads. We believe consumer complaints will not be significant once it is introduced."
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