Contributed by Honey Berman
Netflix proudly notes that less than 2 years after launch, its ads tier now accounts for over 45% of all signups in ads markets, including the U.S. Given that success, it’s curious that Netflix has chosen to license first-run studio films that its U.S. ad-tier subscribers see but can’t watch.
The Sony Pictures Deal
The recent films that Netflix licensed from Sony Pictures do not include advertising insertion rights. The list 
includes the newly added Ghostbusters: Frozen Empire, as well as: Anyone But You, Dumb Money, The Equalizer 3, 65, No Hard Feelings, and A Man Called Otto. Click on Ghostbusters: Frozen Empire, and you will get the following message, “Unavailable on an ad-supported plan due to licensing restrictions.” Looking closer at the screen, further down, there is an option to upgrade to a commercial-free tier. Upgrading will cost you as much as $15.49 a month vs. Netflix’s current ads tier pricing of $6.99 a month, for two streams, High Definition, and downloads. The significant price difference between the ads tier vs. commercial-free makes it unlikely that many subscribers will find this an attractive option. Plus, Netflix’s current ad load isn’t offensive compared to Hulu’s more frequent and longer interruptions.
A cursory review of other hybrid SVOD services, such as Amazon Prime and Hulu, reveal no such disclaimers on films promoted on their ads tier. Of course, if you try to fast-forward through a commercial on Amazon Prime a message appears suggesting you upgrade to a commercial-free tier; but unlike Netflix, there does not seem to be any promoted content that you simply can’t watch.
An Ads Tier Future
Like most of its SVOD brethren, Netflix has been aggressively directing new subscribers, as well as current subscribers, to ad-supported tiers. Ads tiers were meant to be the way of the future, eventually increasing average revenue per subscriber without dramatically increasing monthly subscription fees. Hopefully, reducing churn as well. Netflix’s shareholder letter states that it is, “on track to achieve critical ad subscriber scale for advertisers in our ad countries in 2025, creating a strong base from which we can further increase our ad membership in 2026 and beyond.”
No mixed signals nor signs of a shift in strategy from ads tiers to commercial-free in any statement to shareholders. Given its ongoing efforts to give advertisers “new ways to buy, insights to leverage and ways to measure impact,” all in service to developing advertising into a key component of Netflix’s longer-term revenue and profit growth, the Sony deal appears problematic for two reasons. First, why compromise your strategic plan to migrate subscribers to ads tiers by licensing content you can’t stream with ads when you’ve worked so hard to build the ecosystem? Where is the value in that? Secondly, and most obviously, why promote content to subscribers who can’t watch it? Why risk angering them?
The Way Forward
Since this is an output deal, Netflix has several options, including renegotiating with Sony for the ad insertion rights or, at the very least, commercial-free sponsorship. In the future, it can reward its commercial-free tier
Honey Berman, Los Angeles Telemedia Associates, Inc.
subscribers by giving them first availability, an early window, on upcoming Sony titles. Of course, Netflix could magnanimously make the Sony titles available to all subscribers on a commercial-free basis, thereby amortizing the cost per title over a greater number of subscribers. Whatever it decides, continuing to promote titles to ads tier subscribers who can’t watch them will only diminish Netflix’s subscriber goodwill and standing in the marketplace.
Hopefully the Sony Pictures deal is an anomaly, and we won’t see its kind, at Netflix or elsewhere, again.
Honey Berman specializes in SVOD/AVOD/FAST content acquisition, marketing, and strategy consulting. hberman@losangelestelemedia.com
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