Why Netflix Is Launching An Ad-Supported Streaming Plan

Streaming giant Netflix Inc NFLX has had a change of heart when it comes to ad-supported streaming. CEO Ted Sarandos shared why the company is moving forward with the new plan.

What Happened: Netflix told employees in May that an ad-supported plan could be coming for the streaming company by the end of 2022. That plan was confirmed by Sarandos at the Cannes Lions festival this week, according to The Hollywood Reporter. 

“We’ve left a big customer segment off the table, which is people who say: ‘hey, Netflix is too expensive for me and I don’t mind advertising,” Sarandos reportedly said. “We’re adding an ad-tier, we’re not adding ads to Netflix as you know it today.”

This marked the first time Netflix attended the Cannes Lions advertising conference. Sarandos is being honored with the Cannes Lions’ Entertainment Person of the Year award at the conference.

Netflix has previously been against adding ad-supported content, with executives saying in March that it was not in the company’s plans.

Related Link: Netflix Shares Plunge After Q1 Earnings, First Subscriber Loss Since 2011 

Why It’s Important: Netflix reported a loss of 200,000 subscribers in the first quarter, its first quarterly decline in over 10 years.

The ad-supported plan could bring a wave of new subscribers and returning subscribers who are willing to watch ads if it means a lower monthly rate.

The cheapest Netflix streaming plan in the U.S. is $9.99 per month, which covers one screen at a time.

Netflix has not announced or commented on what an ad-supported plan might cost.

Streaming platform Hulu has an ad-supported plan. HBO Max, which is owned by Warner Bros. Discovery WBD, also had an ad-supported plan.

Disney+ from The Walt Disney Company DIS is also working on an ad-supported plan.

With the heavy competition in the streaming markets, lower price points for some consumers might make sense as they could afford more offerings, a move that could pay off for Netflix.

Along with confirming the ad-supported plan, Sarandos also commented on the company being an acquisition target given its share price falling.

“(A buyout) is always a reality, so we have to be wide-eyed about that,” Sarandos said. “We have plenty of scale, and profitability and free-cash flow to continue to grow this business.”

NFLX Price Action: Netflix shares are up 0.47% to $79.74 Thursday versus a 52-week range of $162.71 to $700.98.