Netflix (NFLX) has hired two ad executives from Snap (SNAP) as the company ramps up its efforts to enter the ad-supported streaming space.
“Advertising has not been in Netflix’s DNA, so for them to go out and hire these Snap executives shows us that they’re really serious about ramping up their advertising efforts,” Geetha Ranganathan, Bloomberg Intelligence Senior Media Analyst, told Yahoo Finance.
Netflix revealed on Tuesday Snap’s chief business officer, Jeremi Gorman, and VP of ad sales Peter Naylor will be joining the streaming giant in September. The news comes as Snap confirmed earlier reports that it will be laying off 20% of its employees, including cuts in its hardware division and a restructuring of its ad sales organization.
“Jeremi’s deep experience in running ad businesses and Peter’s background in leading ad sales teams together will be key as we expand membership options for consumers through a new ad-supported offering,” Netflix COO Greg Peters said in a statement to Yahoo Finance.
The company’s upcoming ad-supported tier, set to launch early next year, will cost between $7 to $9 a month, according to Bloomberg. The outlet added that Netflix will play four minutes of ads for every hour of content.
Ranganathan anticipates that Netflix will generate $1.5 billion in advertising revenue by 2023. She also expects the ad-tier to help the service regain subscriber growth.
“Ad-supported opens up the addressable market pretty dramatically,” the analyst reiterated.
She added that the streamer should be able to offset any negative trade-down impact due to its value proposition to advertisers.
“The average Netflix user watches about two hours of content every day — that’s very compelling.”
Netflix shares are currently trading at around $224, flat over the last month but still down roughly 62% year-to-date.
Ranganathan said the rumored price point feels fair, especially compared to the costs of competitors.
“Customers are getting increasingly price sensitive, so it obviously does make sense to make an ad-tier almost half of the ad-free version’s monthly fee,” she said.
In addition to Netflix, Disney has also hopped on the ad bandwagon, revealing that the official launch date for its ad-supported offering will be December 8. This new tier will cost consumers $7.99 a month — the same price as Disney+’s current ad-free plan. The cost of that plan will jump 38% to $10.99 per month in December.
The price of Hulu’s ad-free service will rise by $2 a month to $14.99 beginning October 10. Hulu with ads will go up by $1, to $7.99 a month.
Apple TV+ is also rumored to be exploring an ad-supported option, while Warner Bros. Discovery revealed it will have three tiers once the combined HBO Max-Discovery+ platform when it debuts next summer.
Streaming platforms have battled a more fickle consumer in recent years.
According to data from subscriber-measurement firm Antenna cited by The Wall Street Journal, about 19% of subscribers to premium services — which includes Netflix, Hulu (DIS), Apple TV+ (AAPL), HBO Max (WBD), among others — canceled three or more subscriptions in the two years up to June, compared to just 6% in the two-year period leading up to June 2020.
This increased churn, coupled with stalling growth in domestic markets, has contributed to big losses in recent quarters with Netflix shedding 1 million subscribers in the second quarter, while Peacock (CMCSA) subscriptions remained flat.
To offset the subscriber slowdown and buoy revenues, price hikes and ad-supported options have become virtually unavoidable as Wall Street looks beyond subscriber counts and zones in on profitability and free cash flow.
Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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