It’s no secret that Netflix is considering releasing an ad-supported version. The company after the latest financial results proposed this option, but did not provide details on how this option could be implemented.
months later, the situation seemed to improve. And as stated Wall Street MagazineNetflix is exploring options with an outside company to implement this new option. In particular, the aforementioned environment points to three possible partners in this adventure: Roku, NBCUniversal, and Google.
The specific terms of each possible agreement are unknown, but given the dynamics of the advertising sector, It is logical to think about some kind of income distribution (Share of revenue) between Netflix and whoever would eventually become its partner.
- Recall that Google is one of the world’s leading advertising companies. The company also has a strong track record in video-targeted ads thanks to YouTube.
- The alliance with NBCUniversal also includes FreeWheel, which will provide the necessary technology to serve ads. On the other hand, NBCUniversal will be responsible for selling the various spaces to interested advertisers.
- Roku, for its part, can also be a partner both in terms of infrastructure and sales. Information in the past it was reported that there were negotiations with this company, but at the moment nothing would be recorded.
“We’re still in the early stages of deciding how to launch a cheaper ad-based option, so a decision has yet to be made,” a Netflix spokesperson told Reuters. WSJ.
On the other hand, sources close to the negotiations consulted by the aforementioned newspaper assured that Netflix did not give details on how it wants to implement its strategy. (number of ads, when they will be shown, whether they will be personalized, etc.). A fact that may be a reflection of how green his plan is.
Netflix shouldn’t turn into Spotify
For a long time, Netflix resisted the idea of launching an ad-supported version of its subscription. Nonetheless, The company’s stagnation in terms of new users prompted senior management to explore the idea. launched by other competitors such as HBO.
The goal of the cheaper, ad-funded version is to increase total subscribers while increasing revenue. However, there is a risk of unwanted user migration. That is, those who have paid the most expensive subscriptions so far have decided to opt for the new cheaper option, despite the announcements.
The key to making sure this possible transfer doesn’t hurt Netflix accounts is ensure that the revenue generated from the sale of advertising compensates for the fact that these users stop paying directly to the company. In addition, this calculation must include the costs incurred by this sale of advertising, such as commissions that potential partners of the company will receive, or the wages of the teams involved in it.
The best example of the risk associated with this dual strategy is Spotify. Audio company makes more money from users who pay for a subscription premium than those with a free ad account. With a difference.
Source: Hiper Textual