New data from Ampere Analysis and Antenna illustrate why launching with an ad tier is better than adding one later. SVOD ad tier penetration and popularity rely on launch availability as most existing and new subscribers stay ad-free if that is how the service started!
Launching a service with ads is better than adding an ad-supported tier
New data from Ampere Analysis shows that SVOD services that came late to the advertising party have a subscriber base that still mostly watches ad-free. Ad-supported tiers at Netflix, Max, and Disney+ represent only a small share of the subscriber base. For example, the company says that, as of June 2023, about 2% of Netflix and Disney+ US subscribers are on the ad-supported tier. Before the conversion to Max in April, about 5% of HBO Max’s subscriber base was on the ad tier. HBO Max launched its ad tier in March of 2021.
On the other hand, those services that launched with an ad-supported tier from the start have a far larger proportion of ad-supported subscribers. Ampere says that 90% of Hulu’s subscribers are on an ad-supported tier. Peacock, which launched in 2020 with both free and subscription tiers supported by ads, also has around 90% of ad-supported viewers.[i] Paramount+ and Discovery+ also have a majority of ad-supported subscribers, with 70+% of subscribers on an ad-supported service tier.
Traditionally ad-free services still attract more ad-free subscribers
Antenna data shows that services that have only recently added an ad-supported tier still get far more sign-ups for ad-free viewing. The company tracks sign-ups to the top SVOD services in the US and found that, between January and May 2023, 69% of new Peacock subscribers opted for an ad tier. 58% and 43% of new subscribers to Hulu and Discovery opted for the ad tiers.
Only 18% of new Netflix subscribers opted for the new ad tier over the same period. However, that proportion could have increased substantially in June and July. Netflix introduced password-sharing curbs in that period, which prompted viewers watching outside of the subscriber’s home to sign up for their own account. These free viewers may be more attracted to the cheaper as-supported tier.
However, despite the widespread availability of cheap ad-supported viewing, most new subscribers opt for ad-free viewing. Between January and May 2023, 3-in-5 new subscribers to one of the top 7 SVOD services selected an ad-free plan.
A higher proportion of new Netflix subs will opt for ads
The proportion of ad-supported sign-ups at Netflix may increase again in July and beyond. The company has decided to remove the cheapest ad-free viewing Basic plan as an option for new subscribers. The plan costs $9.99 a month and sits in the middle of the ad-supported tier ($6.99) and the Standard ad-free plan ($15.50.)
When the ad-supported tier was first introduced, it most impacted the number of sign-ups for the Basic plan. Before the introduction, Antenna said 2-in-5 new subscribers opted for the Basic tier. After the Standard with ads plan was introduced, the proportion signing up for the Basic tier stabilized at about half what it had been before, while the proportion opting for higher priced plans remained about the same.
It could be that most of those who would have opted for the Basic plan will now decide to watch with ads. With the elimination of the Basic plan, the price difference between ad-supported and ad-free viewing has increased from $3 to $8.50 monthly.
[i] Peacock has closed the free ad-supported tier to new users but allows people that had already signed up to continue to use it.
