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Cheap Ad-supported Netflix Subscription Fails to Drive Significant User Growth.

Published: 2023-01-18

On Thursday, January 19, Netflix, which owns the streaming service of films and series, will announce the results for the fourth quarter of 2022. Netflix is expected to report its lowest quarterly revenue growth yet. The company is struggling with declining revenue as well as rising costs of funding content creation and increased competition from Disney+ and Amazon Prime.

The company had high hopes for the video streaming service to launch a Basic with Ads plan with a low subscription fee and support for displaying ads, but this did not lead to a significant increase in subscribers.

The service is expected to add 4.5 million subscribers in the reporting quarter, the lowest number for the holiday season since 2014. For comparison, in the same quarter of 2021, the company added 8.3 million subscribers.

Analysts say the $6.99 per month ad-supported plan doesn't provide access to all games and isn't affordable enough to attract a significant number of subscribers in the US and Canada. “Given the saturation of the market and the variety of options available, as well as the fact that the price is not necessarily significantly lower than the competition, there are some challenges in meeting the set goals in terms of number of subscribers,” said Jamie Lumley, an analyst at Third Bridge.

This raises questions about funding the company's planned content creation costs, which CFO Spencer Neumann says will be about $17 billion a year over the next few years. “Given current interest rates, Netflix will have to be very selective about content and how it finances it,” said Shahid Khan, partner and global head of media and entertainment at Arthur D. Little.

By comparison, rival Walt Disney expects FY 2023 content spending to be less than $30 billion, while Paramount Global forecasts spending less than $10 billion. and other departments.

Netflix lost a lot of subscribers in the first six months of 2022 due to exiting the Russian market and the global economic downturn, forcing the service to launch an ad-based plan it had long resisted. However, some analysts believe that the company's plans for an ad-supported tariff will pay off in the long term, especially in emerging markets where consumer spending power is much weaker.

Netflix's fourth-quarter revenue is set to rise just 1.7% to $7.84 billion, the lowest since the company went public in 2002.