You may have heard the news already. Streaming powerhouse Netflix has released a subscription tier that comes with advertising, and its rival Disney+ is only days away from doing the same.

Both companies have experienced slowing subscriber growth since the tail end of the pandemic, largely thanks to a growing number of competing services, such as Prime Video, Paramount, Binge, Stan and others, as well as rampant account sharing that has plagued most streaming companies since the beginning.

The hope for both Netflix and Disney+ is that by introducing an ad-supported tier at a cheaper price, they’ll encourage subscribers to create and pay for their own accounts. It also doesn’t hurt that advertising is an additional revenue stream, which will most definitely keep shareholders happy.

The Netflix Offering

Netflix’s ad-supported tier launched in Australia on November 3. It’s called Basic with Ads and costs $6.99 per month. The next cheapest offering is ad-free Basic at $10.99 per month, with the most expensive being Premium at $22.99 per month.

Both Basic subscriptions stream content at up to 720p, however Basic with Ads comes with advertisements, as the name suggests. During Netflix’s launch period, 15 or 30-second ads will air at an average of four or five minutes of ads per hour, playing before and during TV shows and movies. 

According to Netflix, the company uses “basic demographic data, as well as general location information based on your IP address, to help tailor the advertising and improve the product offering.” Advertisers also can also target users by genre watched, such as action or romance.

Ads shown on the cheapest Netflix plan are unskippable, which might interrupt the flow of what you’re watching, especially given a lot of Netflix content is not designed with commercial breaks in mind. Over at MP Digital we’ll be watching closely to see if new Netflix content produced will change its pacing to incorporate commercial breaks moving forward.

The Disney+ Offering

Disney+ has announced that its ad-supported package will be called Disney+ Basic and will cost US$7.99 a month. This is currently the same cost for its ad-free tier, however as Disney+ Basic launches, its ad-free tier will increase to US$10.99 a month and be renamed Disney+ Premium. 

Currently, the launch is set for December 8 – tomorrow – in the US. At the moment there is no date mentioned for Australia or anywhere else in the world. However, The Walt Disney Company’s CFO has stated that the company plans to take their advertising tier international in 2023. 

Given Australia was one of the earliest countries in the world to get Disney+, it would be fair to speculate that we'll receive the ad-tier relatively early as well. It all depends on their advertising infrastructure.

What Does This Mean for Other Streaming Services?

The push into advertising is a big moment for both companies, and one that will likely have knock-on effects for the wider TV and video on demand market. 

Firstly, it levels the playing field for BVOD

Australian broadcasters have had advertising on their streaming apps since they were released, which has led many to insist that they’re “dead” along with linear TV. While VOZ has shown this is not the case, with Netflix and Disney+ now joining their advertising ranks, it’s likely to level the playing field, if not give them an edge given the broadcasters come without a subscription fee.

Further to this, Australia’s federal government wants to ensure local TV services can be easily found on connected TV platforms in a bid to protect local content. 

Smart TVs can divert viewer traffic by pre-installing streaming apps, placing these apps prominently in the digital menu and having specific app buttons on remote controls. With the federal government stepping in, it could mean that viewers would see icons for Seven and Nine free streaming apps rather than Netflix or Disney+ when they first fire up their smart TVs.

Secondly, it makes introducing advertising easier for other SVOD providers

With two streaming juggernauts offering advertising, it’s likely that other SVOD providers will look to do so too. For example, not long after Netflix’s announcement, Foxtel announced its drama streaming app Binge will introduce advertising in 2023, capped to 4 minutes per hour, and a frequency cap of one per hour per user.

Foxtel Media CEO, Mark Frain said, “Opening up advertising on Binge is going to allow brands to appear alongside some truly world class content and add immense scale to our network… At the same time, we are being extremely careful about our offerings to ensure that we safeguard the watchability of Binge that our subscribers treasure, which will ultimately have great benefits for brands as well.”

Binge has not announced any new subscription plans as part of its advertising tier, so it will be interesting to see how this unfolds next year.

What’s the Benefit for Advertisers?

At the moment, the advertising opportunities are all very new so it’s likely that we’ll only see investment into the platforms from well-known enterprises. But it’s certainly something worth looking into. When it comes to Netflix and Disney+, both typically have a younger audience than traditional TV, which makes it a useful platform for brands trying to attract Gen Z. 

As for Binge, half of its subscribers are high income earners, with 80% below the age of 54; data that makes it a viable platform for the right brands as well.

Final Thoughts

When streaming services first came out, advertising was anathema to them. There will likely be slow take-up of the advertising options for this reason. But at the end of the day, television products introducing advertising isn’t new. When Foxtel first launched, it was ad-free. Eventually, to keep the costs down, advertisers made their way onto the platform. People were annoyed at first and some cancelled their subscription, but it didn’t hurt Foxtel in the long run, and it’s likely that advertising won’t hurt Disney+ or Netflix in the long run, either. 

If anything, it might save their businesses.