Netflix’s ad tier: a business model able to attract new users or resulting in subscription downgrades?

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...