Netflix's Fastest-Growing Subscription Option Isn't What You'd Expect

Netflix has shifted from its original business model to maintain its position within the streaming wars, expanding to split-season releases, live content, sports, and even broader theatrical releases for original films like The Adventures of Cliff Booth. It began experimenting with ad-supported streaming in November 2022, but didn’t break its 15-year streak of no commercials on a whim. Advertising has been lucrative for Netflix; it now has three subscription options, and, as of last month, reports that over 60% of new subscribers are choosing its ad-supported tier. It's unsurprising that a vast majority of subscribers would opt for a cheaper option, but it’s yet another sign that streaming is starting to look a lot like traditional cable.

Netflix isn’t the only streaming service to introduce ads, as Prime Video, HBO Max, and Paramount+ have all introduced tiers that feature commercials. Disney+ and Hulu have offered ad-supported plans that have become even more popular in the last three years. 90% of households use at least one streaming service and subscribe to an average of four. Netflix was once touted as a “catch-all” service that could satisfy all streaming desires, but it's become one of many subscriptions that the average consumer pays for. While this doesn’t mean there will be a significant number of cancellations en masse, it does imply that users would rather save money for other streaming services than subscribe to a pricier Netflix tier.

Ads Have Become Core to Netflix’s Subscription Business

Although the initial premise of a business model based purely on subscription fees may have seemed novel when first introduced, it was never going to be sustainable long-term. There’s a ceiling that Netflix hits with the number of subscriptions it can maximize, and it can only minimally raise its monthly prices without alienating consumers. Advertising has always been a lucrative opportunity because it depends on interactions; Netflix wants its viewers to interact with its content so that it is attractive to companies that would want to advertise their products to a wide demographic. On one hand, this means that Netflix is trying to make shows that will spark engagement, as they would generate the most ad revenue. On the other, the streamer has also been ruthless in cutting titles from its library; nearly every Netflix subscriber has, at least at one point, suffered the frustration of having one of their favorite shows cancelled because it didn’t perform to expectations.

As is the case with nearly everything in the entertainment business, company decisions are determined by the will of the customers, who are themselves reliant on monetary feasibility. The introduction of new streaming platforms, each with its own exclusives and originals, has made it less likely for Netflix to be the sole subscription in any household. Toggling between multiple services means that viewers will be willing to cut costs by dealing with ads. What will distinguish these services from each other in the long run is not whether they have ads, but how they choose to integrate them. There are plenty of flaws within Netflix’s business strategies and content deals, but its ad integration has been surprisingly smooth, especially when compared to its competitors; Paramount+, in particular, has been criticized for being buggy.

The Price of Streaming Only Continues To Go Up

While it might have once touted being ad-free as a source of pride, Netflix can’t afford to show any signs of weakness when the streaming wars are heating up. While services like Apple TV and HBO Max have consistently put out consistent, well-performing titles that have grown their audiences with each season, Netflix has seen many of its popular series dip in viewership upon their return. The conclusion of Stranger Things was obviously the end of Netflix’s biggest blockbuster title, but it's not the only popular program nearing its finale soon; other shows with their finale seasons planned include 3 Body Problem, The Lincoln Lawyer, Emily in Paris, The Night Agent, and Outer Banks. Netflix knows that it needs to give its subscribers a reason not to churn, especially if they’re not immediately engaged in a new show, and offering flexible pricing plans does allow it to be more adaptable.

The emphasis on ad performance reconfigures Netflix’s strategies, but all streamers will have to find a way to make multiple subscriptions more sustainable for consumers. Ads aren’t going away anytime soon, but they might be worth it if Netflix is able to keep being a major distributor of original content that supports the production industry. At the end of the day, streaming services benefit themselves by being flexible, as they are all working towards the same goal of giving audiences a reason to care about films and television.