Streaming giant Netflix Inc. (NASDAQ:NFLX) is set to launch its ad-supported plan later this year. Reports show the company charging a significant premium compared to other streaming platforms.
The company intends to roll out the plan ahead of rival Disney+, which will roll out its own ad-supported plan on Dec. 8, 2022.
What Happened: The Los Gatos, California-based company has moved up its ad-supported platform launch. According to new reports, the launch could happen in November, putting Netflix ahead of its rival Disney+, the streaming platform owned by The Walt Disney Company (NYSE:DIS).
Disney is charging $7.99 per month for its ad-supported plan. Netflix has not announced the rate for its ad-supported plan, with the company recently denying pricing levels in the $7 to $9 range.
Along with moving up its planned launch, Netflix is also aggressively pricing its advertisements with a reported ask of a rate of $65 CPM, or $65 per 1,000 ad units viewed. Over time, Netflix sees the CPM rising to $80, according to the Wall Street Journal.
Netflix is also said to be asking for a $10 million minimum commitment from ad agencies. The streamer will also seek a one-year commitment from advertisers.
Netflix will not air advertisements during certain kids' content or original movies. The streaming company also won’t let advertisers select target audience based on geography, age, gender or viewing habits during the initial ad rollout. Advertisers will be able to target users that watch shows in the top ten, which could come with premium pricing for the streamer.
Why It’s Important: A report from Variety said most advertisers aren’t willing to pay the $65 CPM rate asked by Netflix. Microsoft Corporation (NASDAQ:MSFT) is partnering with Netflix on the advertising efforts for the streamer.
The companies have requested ad buyers to submit bids next week and are willing to negotiate on the $65 CPM rate.
While Netflix is the leader in streaming and its series regularly top the streaming charts, the $65 CPM rate is significantly higher than the average CPM rate of $20 or less in the industry. One ad buyer told Variety that companies might use a wait and see approach first before committing.
Ads on local television typically range between $5 and $10 per 1,000 views. YouTube, a unit of Alphabet Inc. (NASDAQ:GOOG)(NASDAQ:GOOGL), gets an average cost of $10 to $30 per 1,000 views. Hulu charges a range of $20 to $40 per 1,000 views.
Super Bowl LVI had a cost of $5.6 million for 30-second commercials that aired on CBS, a unit of Paramount Global (NASDAQ:PARA)(NASDAQ:PARAA). For context, one Twitter user points to the ad rates from Netflix of $65 to $80 per 1,000 viewers being in line with what Super Bowl commercials cost for advertisers.
Similar to traditional television, Netflix could test higher ad rates for season premieres or finales, which typically see stronger viewership.
A true test of Netflix's pricing power could come next year with the release of the final season of "Stranger Things," a show that has topped the streaming charts and broken records. Netflix also has a second season in the works for "Squid Game," the massively successful series. It's not out of the question to think that these series could see commercial prices on par with the Super Bowl and some of the biggest television series of all time.
Netflix ended the most recent quarter with 220.67 million subscribers. The company is said to be estimating it will have 500,000 customers on its ad-supported plan by the end of the year.
The new ad-supported plans from Netflix and Disney could be a test to see if there are enough ads to go around and how companies could pick and choose in the highly competitive market. HBO Max from Warner Bros. Discovery (NASDAQ:WBD) has a plan with commercials as does Hulu, which is majority owned by Disney. Paramount+ has an ad-supported plan and saw recent strong demand for advertisements and a growing CPM rate, according to Adweek.
Netflix is planning to show four minutes of ads per hour for each series and to run pre-roll ads before movies. While the company is showing fewer ads than rivals it could see a revenue windfall based on the ad rates it is testing that are significantly higher than the industry.
NFLX Price Action: Netflix shares are down 1% to $228.36 on Friday.