US SVOD: Are the emergent ad revenues enough to offset the ARPU decrease?

In April 2022, Netflix reported a subscriber loss for the first time in a decade. With consumers easily shifting from one service to another comes a new challenge for SVOD platforms: retaining the subscribers they attracted a few years before. A year later, Netflix recovered and remains the world’s leading SVOD platform - although a growing portion of its subscribers pays less, with the introduction of the ad tier. In the competitive US SVOD landscape, will hybrid subscribing models become a key pillar of the platform's strategy? Also, how do their competitors such as Prime Video or Disney + manage to keep their viewers on the hook, thanks to ad-based plans or other strategies? Rolling out new hybrid subscription plans: Ad-based offers bring more flexibility to consumers in 2023 2022 has been a bumpy year for Netflix. The group reported a loss of approximately 200,000 subscribers worldwide for the first quarter of 2022, before losing close to a million at the end of June. Looking at the ARPU (Average Revenue Per User), the latter slightly decreased from $16.37 in Q322 to $16.23 at the end of the year. Indeed, Netflix rolled out its hybrid ad tier in November, allowing subscribers to pay $3 less than the basic ad-free plan. According to the company, which reported 5M ad-tier subscribers worldwide in mid-May 2023, “25 percent of new signups select the ad-supported tier in countries where it’s available”. In late May 2023, Netflix also took measures to fight password crackdowns. The $7.99 fee that extra members will cost US households might push unsatisfied users to switch to the competition. Disney also introduced its ad-based offer in the US during Q422. Regarding the ARPU, the figure kept going down from 5.45 in Q421 to 4.86 at the end of 2022. The Mickey Mouse company has also been reported to fully acquire Hulu (it already owned two-thirds of it), whose ARPU slightly decreased throughout 2022. Other SVOD services that stuck to the SVOD business model didn’t experience a comparable ARPU evolution, with Prime Video and Paramount+ growing respectively to more than $3 and $5.17 at the end of 2022. Will ad-tier plans become unavoidable to remain attractive in the streaming industry? Looking at Netflix, the launch of its ad tier in November 2022 came with the first decrease in their average paying membership in years for both the US and Canada. The figure dropped from $16.37 in Q322 to $16.18 in Q123. However, the decrease slowed down over the latest quarter (less than 0.5%) and the trend is likely to reverse by the end of the year for the following reasons. First, as the streaming giant expects its ad-based product to account for 10%...