• by Karlene Lukovitz  @KLmarketdaily, March 20, 2023

While it’s still very early days, launching ad-supported tiers seems to be paying off for both Netflix and Disney+.

After a Netflix’s Basic with Ads tier, launched on November 3, grew to more than 1 million monthly active user accounts in the U.S. by the end of its second month, according to a Bloomberg report based on having seen Netflix internal data. 

And after initially needing to refund some Basic with Ads advertisers because it missed viewership guarantees due to lack of inventory, Netflix reportedly has been delivering on its viewership promises to advertisers. 

Still, it’s not clear whether the ad-supported tier has increased total U.S. and/or global subscriber numbers, and even several million subscribers would represent a tiny fraction of Netflix’s subscriber base, reported at 231 million as of the end of 2022. 

Antenna just reported that 19% of total new Netflix sign-ups are now for the ad-supported video-on-demand (AVOD) tier. 

As Netflix projected — and similar to an analysis of subscribers conducted in January by Ampere Analytics — Antenna data shows most of the ad-supported subscribers to be returning or first-time customers. (Ampere found that 8% of subscribers signing up for Netflix or switching to a different Netflix plan were opting for the ad-supported tier. Of those, 75% were sign-ups, consisting of 64% “re-subscribers” and 36% were first-time subscribers.) 

Retaining most no-ads subscribers would certainly seem to bode well for the economics of introducing the AVOD tier. And Netflix has said that even on their own, AVOD subs will be profitable.

Meanwhile, Disney+ — which hiked the price of its no-ads tier by $3 per month, to $10.99, when it launched its ad-supported tier on December 8 (at $7.99 per month) ­— saw its churn rate actually decline from 6.2% in November to 5% by February, according to Antenna. 

So while that churn rate is still higher than 2022’s, Disney has thus far managed to implement a 38% price increase while losing just 1% to 2% more incremental subscribers, pointed out Bloomberg, adding: “You make that trade very time.” 

Little wonder that just-returned Disney CEO Bob Iger has already made it clear that there will be more price increases in order to correct for the company’s having kept Disney+’s prices too low for too long.