Analyst warns of Blockbuster effect as Netflix mulls ad-supported tier | VOD | News | Rapid TV News
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In the latest research following rekindled speculation as to whether Netflix will introduce an ad-based tier, TDG has found that 32% of the SVOD package’s users would switch to such an option, more than half of which would definitely or moderately likely be to do so.

TDG Netflix Ads 10July2019The basic argument for Netflix adopting advertising is the rising costs of programming and growing debt, meaning to many pundits, noted TDG, that it was just a matter of time before the company makes a move. It added that while the company has consistently spurned ads, the decision is not entirely within its control In the next year, many of Netflix's most-viewed shows will disappear from its library, as networks like Disney and WarnerMedia reclaim their high-value titles in order to populate their own DTC services.

“Netflix's response to its thinning third-party library is to spend more on originals, which it's gambling will keep subscribers from jumping ship. But with half or more of its most-viewed shows being owned by three studios, each of which is launching their own DTC services, how long can you convince 55+ million US consumers that your service is worth paying a premium price, especially compared with Hulu (offers an ad-based option), Amazon Prime Video (free with Prime), and Disney+ (coming in a $6.99/month),” asked Michael Greeson, president of TDG and senior vice president of Screen Engine/ASI.

TDG added that given this context, and in order to offset mounting costs and pressure from investors to begin paying down debt, Netflix will need to keep on increasing the retail prices of subscriptions or create a new revenue stream, such as advertising. TDG predicted that the launch of a less expensive ad-subsidised tier will happen in the next 18 months.

The analyst also warned that Netflix could be compared to Blockbuster in the 2000s, long enjoying dominance in its market space, largely defining its space, setting the rules and long since reigning but with the side effects of producing what it described over-confidence and an embedded resistance to change.

“TDG's research from late 2018 found that Netflix's most recent price increase strained the limit of the service's value, even before popular third-party shows are pulled from the line-up. When this happens, short-term domestic price increases will be difficult if not impossible without deleterious results,” Greeson added. “But the stage is shifting and if, like Blockbuster, Netflix fails to evolve in a timely fashion, the company may see its domestic fortunes reversed....Ads will become an important part of a comprehensive tiering strategy that helps bullet-proof Netflix for years to come.”