TBI Tech & Analysis: What’s behind Netflix’s Basic move?

The Crown (Source: Netflix)

With Netflix preparing to shutter its Basic tier – the lowest priced ad-free plan – in the UK and Canada in the second quarter of 2024, Omdia’s Matthew Evenson explores the impact on the global streamer and its rivals.

Netflix rounded out 2023 with one of its best sets of quarterly results in recent years. The company added over 13.1 million subscriptions in Q4, with more than five million added in EMEA alone, cementing its position as Netflix’s largest individual region.

There were also several million added in each of North America, Latin America & the Caribbean, and Asia & Oceania.

In its quarterly reporting, The Crown streamer also announced that it would be retiring its Basic tier plan in two of its advertising markets – the UK and Canada – Q2 of 2024.

In 2023, Netflix gradually closed the Basic tier to new or rejoining subscribers (any existing subscribers on the plan at the time could remain subscribed), but the company is now taking the final step and closing it completely.

If successful, Netflix has suggested that it could close the tier in some of its other advertising markets. The move suggests either a confidence in the ad-supported tier in these markets, which is supported by Netflix’s indication that 40% of new sign-ups in its advertising markets are now for the ad-supported tier, or a deliberate move to push its lowest-paying subscribers onto a new tier.

Subscribers to the Basic tier in these markets will now be given a choice (either directly or indirectly, depending on how Netflix intends to enact the change) to either pay more to retain an ad-free viewing experience or pay less and accept seeing ads in their TV shows and films.

This is a change that reflects the increasingly standardised pattern being established among video streaming services pivoting to advertising-supported tiers.

How Netflix’s advertising strategy positions its proposition against rivals

It is not just Netflix that has been lured in by the potential revenue stream that advertising can offer. On the initial launch, Peacock had two ad-supported tiers, free with ads and $4.99/month with ads, but the free-with-ads tier has since been discontinued.

Both Paramount+ and Max have ad-supported plans in the US, with further expansion into international markets planned for 2024.

Disney+ launched an ad-supported subscription in the US at the end of 2022, following up with a launch across key European markets in November 2023; existing subscribers were kept on the same package, albeit at a new increased price.

In contrast, Amazon introduced advertising to all existing Prime Video subscriptions in the US, the UK, and Germany (with more markets likely to follow) in early 2024, and to get back the ad-free experience, Prime Video subscribers need to pay an additional $2.99/£2.99/€2.99 per month.

Regional streamer SkyShowtime has announced that it, too, will be launching an ad-supported tier in April 2024 across its 20+ European markets.

Each service has taken a slightly different approach to introducing their customers to the inclusion of advertising on their service, but one constant has emerged from these recent developments: low-cost, ad-free streaming subscriptions are set to become a thing of the past.

As general entertainment services aimed at the mass market, it is crucial that these streamers maintain a subscription option with a comparatively lower cost of entry so as not to make the cost of a subscription unaffordable to those lower-income consumers, especially given the high rates of inflation, threat of economic recession, and associated cost of living issues that many are still experiencing.

However, the inclusion of advertising into these low-cost subscriptions allows streaming companies to generate additional revenue from these consumers.

Lack of ads was one of streaming’s initial selling points, but as the market has grown and more and more companies look to take their own slice of the pie, many streaming companies are under pressure to demonstrate that their service is, or will be, financially viable in the not-too-distant future.

Matthew Evenson is a research analyst for Omdia’s Media and Entertainment division. Omdia, like TBI, is part of Informa. To read more about this subject, click here.