Subscriber retention is trending on Netflix right now.
Ads have become a key aspect of Netflix’s strategy to retain users by offering a lower-cost option – and, so far, the approach seems to be working.
Netflix told investors during the company’s earnings call on Wednesday that a jump in ad-supported sign-ups in Q3 was responsible for higher-than-expected growth in overall paid memberships.
Banning account sharing certainly helped fuel the increase.
But convincing people to sign up for an ad tier and getting them to stick around are two different things.
Netflix needs more AVOD subscribers because they bring in higher average revenue per user than ad-free subs. At the same time, the streamer also needs to keep ads to a minimum so as to not turn off its ad-supported viewers – especially if they’ve returned to the platform after having previously canceled their subscription.
This fight against churn would explain why, based on my experience, Netflix appears to welcome back returning subscribers with a considerably lower ad load than it serves to more loyal, long-term subscribers.
Please come back
I first signed up for a Netflix account in January to check out the ad-supported option, which, on average, would show around four minutes of ads per hour of content.
I canceled soon after posting this article, but relented and resubscribed following six months of incessant emails about new shows I might like. I finally gave in and came back so I could watch the latest season of Matt Groening’s animated series, “Disenchantment.” (In case you’re wondering, it’s awesome.)
This time, Netflix served me just 15 to 60 seconds of ads per hour of content.
Based on my experience, Netflix reacclimates the subs it wins back by subtly and gradually increasing the ad load as they watch more shows. On-demand streaming subscribers have a low tolerance for ads, so they’re more likely to stick with a streaming service if they perceive its ad load to be lower than it really is.
My binge session began with a whole season of “Disenchantment,” with 15 to 30 seconds of ads per 30-minute episode, followed by the first hour of the trending “Beckham” docuseries, which had only one 15-second ad. Then I watched two hourlong episodes of “The Great British Bake Off” and two 45-minute episodes of “Is It Cake?” Both shows served me a total of one minute of ads apiece.
Slow and steady
Not only was I seeing far less than the average of four minutes of ads per hour of content, I noticed Netflix was actually skipping over the markers that usually trigger ad calls.
There were so many skipped ad breaks breaks that it led me to wonder whether what I was experiencing was less about reducing churn and more about Netflix being unable to sell all of its inventory. Netflix’s ads business remains marginal, according to its execs. (Last quarter, Netflix CFO Spencer Neumann said the company’s ad revenue “is still very small overall because it’s still nascent to the business.”)
But it’s hard to imagine Netflix is struggling to attract demand, especially after making inventory available programmatically through a private marketplace launched in April with its ad sales partner, Microsoft.
Sure, advertisers may be frustrated because the ad targeting options are still too basic and the ad tier’s subscriber base has been growing too slowly for their liking. The new Disney+ ad tier, by comparison, picked up quicker momentum in a similar timeframe. But neither is enough of a reason for buyers to ditch Netflix. It’s Netflix.
The streaming giant may be under pressure from advertisers, but it can still choose to prioritize a better user experience (as in, fewer ads) without losing brands.
Google, Nike, Target, The North Face, Buick, Capital One, Chipotle and Ben & Jerry’s have all advertised on Netflix, just to name a few.
Spread thin
I noticed that Netflix also spaces ads differently depending on how many episodes a viewer has consumed.
Nearly everything I watched this week contained only midroll ads in the second half of a stream, with just two pre-roll ads peppered in.
Netflix also just unveiled binge ads at Advertising Week in New York City on Tuesday, which are sponsorship deals that let subscribers watch an ad-free episode after viewing a pre-roll commercial. Hulu has had binge ads for years, and a similar offering from Netflix could help the platform compete for advertisers.
The point is, Netflix wants subscribers to think of its platform as providing something close to the same non-interruptive streaming experience that it offered before giving into the financial temptations of advertising.
What I want to know is: Will Netflix be able to placate both viewers and advertisers?
Let me know what you think. Hit me up at alyssa@adexchanger.com.
