Will People Flock To

Netflix's New Ad-

Supported Service?
Experts Weigh In Toni Fitzgerald

MKTG 386 – Chapter 8: Service Innovation and Design

November 9, 2022
Sarah Carmen, Morgan Downing, Bastian Andersson

https://www.forbes.com/sites/tonifitzgerald/2022/10/14/will-people-flock-to-netflixs-new-ad-supp
orted-service-experts-weigh-in/?sh=1079f76c7aa3
Introduction
• New ad-supported subscription tier
• Redefining the company
• Opening the door to a new consumer base

“The exciting value proposition for Netflix is

not just in moving those on lower priced tiers to
the ad model to grow average revenue per user;
it is the significant opportunity they now have
to bring in and monetize millions of net new or
lapsed subscribers.”
- Ashwin Navin, Samba TV
Introduction cont.
• Netflix is very familiar with the wants and needs of
the streaming consumer, providing an advantage for
understanding the perfect amount of change:
• "The sweet spot for streamers looking to move to an
ad-supported model is one that offers five minutes or
less of advertising per hour and reduces the cost of
their subscription by half" -Ashwin Navin
• Netflix's Perfect Proposal: 
• 4-5 minutes of ads per hour for $6.99/month
• 54.87% price cut, greater than the consumer's
request of 50%
Why Change?
• Experiencing slower
subscriber growth than in
past years.
• Increased cost of living and
inflationary prices has
resulted in more price-
conscious consumers.
• 9/10 people are already
using other ad-supported
streaming platforms.
 Comparison with Competitors

$6.99/month $4.99/month
$7.99/month
4-5 minutes of ads per <5 minutes of ads per hour
<12 minutes of ads per
hour hour

$7.99/month $9.99/month $4.99/month

4 minutes of ads per hour 4 minutes of ads per hour 8-10 minutes of ads per
hour
Concept Origin
• Reason for change: "to redefine how people
think of the company" -Toni Fitzgerald, Forbes
• Netflix wants to expand their reach, without
affected or changing the experience of their
current customers.
• Netflix is known for not offering an ad-
supported service/tier so this change is a big
step for them.
 They know that this is something that has
succeeded before (Hulu AVOD, Peacock AVOD).
Concept Origin 
• Goal: bring in more revenue by changing their model without affecting current
users 

• “'We believe that more choice, especially for more price conscious consumers,
will translate into meaningful incremental revenue and operating profit over
time,' the company said last month. 'That said, it’s still very early days and,
since we’re keeping our existing plans ad-free, it will take us time to build up
our membership base and the associated ad revenue.'” -Reed Hastings, CEO of
Netflix
Execution of Change
• Netflix partnered with Microsoft to create the ad-
supported tier of service.

• “Microsoft has the proven ability to support all our

needs as we together build a new ad supported
offering. More importantly, Microsoft offered the
flexibility to innovate over time on both the
technology and sales side, as well as strong
privacy protections for our members” -Greg
Peters, COO of Netflix
Service Innovation
• Netflix's adaptation of an ad-supported service is an example of a new form of lone
service.

• "Nine out of 10 adults who do not currently have a Netflix subscription watch other
ad-supported streaming content" -Ashwin Navin, Samba TV

• Netflix has been an ad-free service since it began so this launch is different for the
company.

• "The company has said that “current plans and members will not be impacted” and
that “‘Basic with Ads’ complements our existing ad-free Basic, Standard and
Premium plans.”" -Frank Pallotta, CNN Business 
Service Innovation (Cont.)
• Netflix knows that its customers and potential customers are not
necessarily opposed to content with ads
• "This massive addressable market of new viewers has no aversion to watching
ads in exchange for free reduced-priced content and are prime candidates to
turn to Netflix's new ad-supported tier." -Ashwin Navin
Service • Opportunity for Service Development

Strategy • Introducing a new subscription tier to existing

Netflix users
Matrix
Netflix's Plans and Pricing
A Win-Win Service Offering
• As previously mentioned, the addition of an ad-supported service platform
benefits those consumers who are particularly conscious about plan prices
relevant with other companies that also offer ad-supported streaming.

• It is also mutually beneficial for Netflix not simply due to potentially higher

sales or market share, but because of the business it allows with advertising
agencies and firms that want the time slots.

• Therefore, Netflix is providing a service offering which covers customers both

B2B and B2C, improving the connections they have in their activity chains.
Customer's role and Innovation
• Customers looking to take advantage of this new lower rate subscription plan
will have to adapt to the addition of advertisements.
• A slight but important adjustment in the role of those who prefer the basic
plans which streaming services offer.
• Netflix is not changing any pre-existing service or process but rather making
an addition which is an offer to a suitable standard of a category of customers.
Provider Gap 2
Netflix's Provider Gap 2
Conclusion: Netflix hopes to...

Slow the loss of customers

Redefine the company image

Connect with new subscribers

Summary
• "As the cost of living continues escalating, budget-conscious consumers
seeking a less expensive Netflix tier will gladly accept ads intruding their
viewing in exchange for a lower monthly subscription cost." -Tammy Parker

• "Netflix said it is almost sold out of ads in its initial inventory." -Toni
Fitzgerald