In November 2022, Netflix launched its new ad-supported subscription in its five main European markets. France, Germany, Spain, Italy and the UK account for 75% of the service's subscriptions in Europe.
After raising its subscription price for several years in response to a slowdown in revenue growth at a time when spending on content was growing exponentially, Netflix has lost its price advantage in the face of aggressive price cuts from rival platforms. The positioning of the advertising offer is in line with national logics:
Netflix is now one of the cheapest SVOD offerings among local competition, as can be seen below.
Mitigated results
Despite an aggressive pricing strategy, take-up of the ad-tier offer has been highly variable from country to country. Dataxis estimates that the ad-supported plan had attracted almost 1.7 million subscribers in Western Europe by the end of March 2023, after five months. Even Though, it is the region where the offer was the most successful, this is a rather mixed result, as it only represents 3.7% of the total subscriber base across those five countries.
It has been very well received at its launch in France, according to
a survey conducted by NPA Conseil and Harris interactive. In contrast, the offer has had little success in Germany, and the German specialized press reported a general negative opinion on this new plan. In the UK, where Netflix has been losing subscribers for the last four quarters, with one exception in Q3 2022, the new plan had difficulties convincing people at first but now seems to be attracting more and more. In Italy and Spain, too, the offer seems to be gradually gaining ground, after a mitigated launch.
Netflix continues to lose market share in Western Europe: the offer attracts more existing customers than new ones
While the offer has undoubtedly enabled Netflix to increase its cumulative subscriber base in the 5 European countries at launch in Q422, with a quarterly growth of almost 2%, the platform seems to have at best stabilized its market share in each country rather than increased it.
This is the case, for example, in Italy and France, where the offering is attracting new customers and offsetting the decline in market share. According to the study carried out by NPA Conseil in France at the end of 2022, the new offer attracted 62% of new customers, while the other accounts were already subscribers and simply switched to the ad-tier plan.
Conversely, in Germany,
according to Kantar, only 17% of new Netflix ad-tier customers in Q1 2023 were new customers. While the number of Netflix subscribers in Germany is growing, it is growing slower than other platforms and Netflix continues to lose market share. The situation is similar in the UK, where a large proportion of third-party subscriptions come from package changes rather than new customers.
The new ad-tier is struggling to convince new customers and boost Netflix’s market position. Thus the global streamer is looking to revitalize the plan: since April 2023, the ad-supported offer now allows content to be viewed in HD and to have two simultaneous streams. Netflix has also announced that it is in the process of negotiating with several studios to make more content available on the ad-supported tier. This change should help the service to fulfill its primary mission of halting the erosion of its market share in Western Europe.
This effort comes as Netflix is expanding the scope of its crackdown on password sharing. Their new measures were extended at the end of May 2023 to 8 countries in Western Europe including France, Germany and the UK, after being launched in Portugal and Spain at the beginning of February 2023.
Despite the launch of the ad-tier, anti-password sharing measures have had negative consequences in Spain, where the platform has lost one million users according to Kantar. Dataxis estimates that Netflix lost almost 6.8% of subscriptions in Spain between Q1 2023 and Q4 2022. The service was probably hoping for a shift to the ad-tier offering, since this is the only country in Europe where taking out a new subscription with advertising is cheaper than paying for an extra account (€5.49 vs. €5.99 per month).
The pricing of extra accounts in other countries raises questions: in France, Germany and the UK, an extra account is the same price as a subscription with advertising, and in Italy the offer with advertising is 50 cents more expensive than an extra account. One may wonder if Netflix can really incentivize the existing customers that might be affected by the anti-password sharing measures to switch to ad-supported plans.
As it becomes increasingly clear that
D2C strategies ultimately represent significant costs, platforms are looking for new ways to strengthen their value proposition - such as HBO Max and Disney+,which have already announced the launch of ad-supported subscriptions in Europe. Digital video players are seeking to understand what customers are prepared to pay for and what they are not. The strong growth in digital video advertising revenues is forcing the giants to rethink their model in order to reduce costs for the end consumer and improve their revenue stream. But Netflix's mixed results in Europe raises the question: is the hybrid A/SVOD model the right solution? HBO seems to explore another way towards non-exclusivity of content on its platform, with the recent licensing agreement signed with Netflix.
This research highlight is based on our data coverage of OTT and Video in Europe. Please contact us to get a demo and see the depth of our service. This topic will also be addressed during Nextv Series Berlin - IFA edition, the event that brings together TV operators, Smart TV vendors, retailers as well as technology suppliers for one full day of conferencing. 
