With the first official disclosures on Netflix and Disney’s new streaming ad businesses likely approaching, it’s looking ever more likely that the two companies will report underwhelming, or at least slow, starts for their AVOD tiers.
The results of a recent survey by SmithGeiger, featuring questions fielded exclusively for Variety Intelligence Platform, supplement anecdotal evidence and other data indicating that Netflix’s “Basic With Ads” tier, which launched in November, is so far falling short of its goals.
Per the SmithGeiger survey, fielded in December, just 5 percent of current Netflix subscribers planned on downgrading to the ad-supported plan within the next month, while about 6.5 percent of total non-members cited the cheaper tier as a reason they planned to subscribe to Netflix in the next month.
A tepid launch for Netflix’s ad business was hardly unexpected; VIP+ has previously argued that Netflix is playing the long game when it comes to advertising. The streamer will likely build greater scale for its AVOD tier over time as the streaming industry matures further and Netflix gains more of a foothold in the ad market. (The company built and launched its ad business in less than seven months, representing a remarkable sprint to the finish line.)
But the results so far have evidently been below even modest expectations; Digiday reported last month that Netflix missed ad-viewership guarantees it had made to advertisers. Clearly, the kinks are still being worked out; at Variety’s recent Entertainment Summit at CES, Netflix president of worldwide advertising Jeremi Gorman said the streamer is “pleased with the growth that we’re seeing” in the ad-supported tier.
Disney+’s own AVOD tier is also in its infancy, having launched just over a month ago, and the SmithGeiger survey results offer the first indication of its popularity so far. The results showed 19 percent of non-subscribers said they were “very” or “somewhat” likely to subscribe to the Disney+ ad-supported tier at some point, though the question did not specify a timeframe for subscribing in this case.
Meanwhile, about 6 percent of current Disney+ subscribers said they planned to downgrade to the AVOD plan within the next month, roughly on par with Netflix’s user base.
Indeed, across the board, the majority of streaming users said they would be making no changes to their current slate of services, with nearly equal proportions saying they had no immediate plans to add, drop, or downgrade any subscription.
In other words, the much-discussed inflationary and economic pressures on consumers still do not seem to be impacting the SVOD market on a large scale. In fact, the share of survey respondents planning to downgrade to an ad-supported plan was actually largest among higher-income users, with nearly a fifth of those earning $100,000 or more saying they would do so in the next month.
About the same proportion of this group said they planned to add a subscription, suggesting certain consumers are downgrading to cheaper plans simply so they can add more streaming services to their budgets.
This climate may explain the low numbers of Netflix and Disney+ users downgrading to ad-supported plans so far; many consumers still seem willing and able to pay premium prices for these services.
But while it may seem ideal for the companies to minimize the number of users downgrading to cheaper plans, there’s an argument to be made that this is not actually the case.
Many analysts expect advertising to significantly boost the revenue that Disney+ and Netflix subscribers generate over time; Wells Fargo projects Netflix’s domestic average revenue per user for its AVOD tier could surpass that of its core SVOD tier as soon as this year.
Disney, meanwhile, has struggled to generate enough revenue from its streaming operations to offset their massive costs — leading Wall Street to batter the company’s stock over the past year — and could therefore benefit greatly from the increased ARPU advertising could bring. But the benefits for Netflix and Disney will be greatly reduced if they can’t get enough eyes in front of their AVOD tiers to satiate advertisers and keep the ad dollars flowing.
It’s very early in the game, to be clear, and no one expected these businesses to post huge launches out of the gate, particularly given the current challenges in the digital ad market. But all eyes will be on those ad tier numbers in the coming year, watching closely for signs of acceleration. Variety