Netflix is launching a new lower-priced subscription service supported by advertising for $6.99 a month in the United States or £4.99 a month in the United Kingdom, €4.99 in France or Germany, or curiously €5.49 in Italy or Spain. Netflix is responding to a loss of subscribers over two consecutive quarters. Its market value has fallen by two-thirds in a little over a year in the face of increasing competition. The inclusion of advertising appears to be an effort to appease investors. Subscribers will still be able to pay a premium to avoid advertising.

The additional advertising supported subscription tier will launch in Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, the United Kingdom, and the United States, with further countries to come. The rollout will start in Canada and Mexico on 1 November, followed by the United States, United Kingdom and seven other countries on 3 November.

The Netflix with adverts option will complement existing basic, standard, and premium subscription plans, which will remain without advertising.

Video quality will be limited to 720p, and the basic plan will increase to this from 480p, with both limited to one stream at a time. It will not be possible to download titles on the plan with adverts, due to the complexity of delivering and measuring advertising. Around 5-10% of movies and television series will not be available because of licensing restrictions.

There will be an average of 4 to 5 minutes of advertising per hour, with frequency capping. They will be 15 or 30 seconds long and will play before and in natural breaks in series and movies. For new movies Netflix says that it will limit advertising to pre-roll.

Advertisers will initially be offered broad targeting by country, programme genre, or top-ten programmes. Demographic targeting based on age and gender may be offered in the future, with the potential for behavioural targeting. They will also be able to prevent their adverts from appearing next to programming that might be inconsistent with their brand, for instance featuring sex, nudity, or graphic violence. Netflix will not accept political adverts, or advertising for weapons, tobacco, or certain other categories. There will be independent verification of viewability and validity from the first quarter of 2023. Nielsen measurement will be introduced in the United States sometime in 2023.

Netflix says that it will have “hundreds” of advertisers worldwide and that it has “nearly sold out” its inventory for launch in fixed price deals. It is not disclosing the current cost per thousand viewers.

Launching six months after it was first announced, Netflix said that it would not have been possible without its partnership with Microsoft.

The advertising option will save users in the United States $3 a month compared to the basic plan, although it costs considerably less than the premium plan, which is $19.99 a month. In the United Kingdom the saving will be just 50 pence a week against the existing basic plan.

Netflix is launching its advertising option a month before Disney+ does, and it will cost a dollar a month less.

In accepting advertising, Netflix is compromising a distinctive element of its brand proposition and arguable a key component of its initial success.

As inflation increases and the cost of living rises, consumers may be more price sensitive, but the main consideration may be how many separate subscription services they can sustain.

The extent to which many existing Netflix subscribers, who have become used to an experience without advertising, will want to save a few dollars or pounds in exchange for interruptive advertising remains to be seen.

Whether the saving will be sufficient to attract new subscribers or recover lapsed members is also open to question. What it does do is segment the market, so that Netflix can target a broader range of price points, with many paying a premium to avoid advertising.

Research group Omdia suggests that within five years 60% of Netflix subscribers will be on the advertising supported plan. Whether Netflix will still be an independent company by then is another matter.