Photo: The Canadian Press
Starting Tuesday, Canadian Netflix users will see a new membership option that costs less, but has one catch: commercial breaks inserted into their favorite shows.
After years of nonstop watching, the world’s largest streaming service is making room for the word of its sponsors. And as inflation continues to squeeze consumers, the proposition of a cheaper Netflix plan may sound appealing to some.
Netflix is not alone in believing that commercial television is back in style.
Several free, ad-supported streaming services will launch in Canada in the coming weeks, all built around a business model that uses the country’s multibillion-dollar ad industry to fund and acquire programming.
Together, the platforms could reshape the way we watch and pay for TV, analysts say. More and more viewers are complaining that the cost of streaming has risen to nearly the level of their old cable bills, prompting each service to rethink its business model.
“Consumers are facing more choice, more platforms and making more informed decisions about which streaming services to keep and which to ditch,” said Justin Krieger, senior technology and media analyst at consultancy RSM Canada.
Among the newcomers, Pluto TV debuts on December 1 with more than 100 channels of free TV series, movies and sports streaming “live” online on a platform that mimics the experience of channel surfing, commercial-free.
Around the same time, CBC is introducing an enhanced free streaming news channel that will be available on CBC Gem and many other streaming platforms. The main attraction will be the flagship program hosted by Andrew Chang of “The National” with commercials interspersed throughout the day.
South of the border, Disney Plus will roll out an ad-supported option later this year, with some industry observers predicting it will use the same model in Canada soon after. The ad tier will be introduced at the cost of Disney’s existing free service. Subscribers who want the ads removed will have to pay a premium.
Each service has its own reasons for getting into the advertising business.
For Netflix and Disney, one of the main drivers is rising revenue as programming costs rise and competitors lure subscribers.
Meanwhile, free streaming services use ad revenue to fund a range of original and licensed programming, putting incredible pressure on Netflix to maintain its leadership position with compelling new movies and shows.
THE NETFLIX PITCH
Earlier this year, after repeatedly swearing off the possibility of ever getting into advertising, Netflix changed its tune by announcing that it would launch an ad tier for subscribers in key international markets.
In Canada, the “basic with ads” plan costs $5.99 per month — less than ad-free plans that start at $9.99 and top out at $20.99 per month.
As a trade-off for savings, Netflix says subscribers will see an average of four to five minutes of ads per hour played before and during their TV shows and movies.
Video quality on Netflix’s advertising plan tops out at 720p, leaving premium subscribers with 1080p and 4K high definition streaming. Viewers also won’t be able to download titles to their devices, and not everything in the service’s library will be available.
Those restrictions will weaken the appeal for many Netflix devotees, suggested Carmi Levy, a technology analyst based in London, Ont.
He said Canadians were sold on the idea of an ad-free Netflix a decade ago, leading other market participants to emulate their approach with similar models.
This is different from the United States, where Peacock, Paramount Plus and HBO Max offer cheaper ad layers as a subscription option, while Crackle and Amazon’s Freevee are among the major players on free, ad-supported platforms.
“Canadians don’t have that experience and as a result may be more resistant to the way Netflix is rolling out the service,” he said.
“It will take time for Netflix and others to educate Canadians about the benefits of paying less for a streaming service and seeing ads in return.”
DO CANADIANS WANT ADVERTISING?
Kaan Yigit, a technology analyst at Solutions Research Group, said a survey his firm conducted earlier this year found that U.S. viewers have already embraced ad-supported subscription options.
He said about 40 percent of HBO Max subscribers signed up for the lower ad tier, while an average of 58 percent of subscribers used the cheaper versions of Paramount Plus and Peacock.
He estimates that a modest 20 percent of Canadian Netflix subscribers will join the ad tier in the next 12 to 18 months.
But Netflix’s initial sign-up numbers won’t be the best indicator of the advertising model’s long-term success, Levy suggested.
Subscribers who have joined the deal can be turned off if commercial breaks are as long as they are on network TV stations, which typically air 20 minutes of commercials per hour.
“The devil is always in the details whenever a streaming provider introduces an ad-based layer,” Levy said.
“The most important thing is how intrusive this ad presentation is to the overall viewing experience. And if it’s intrusive in the way that consumers have long complained about traditional TV ads, then it could be a setback for Netflix.” “
Until those complexities play out, advertising agencies say their clients are salivating at the prospect of new placement opportunities in the Canadian market.
“What we’re seeing is a lot of initial excitement and questions, especially around Netflix,” said Marissa Cristiano, an account director at Cossette, who says she’s “exploring” ad buys on the service with some clients.
“They’ve done a really good job of creating … the type of content that brands really want to connect with.”
Cherie Hill, senior vice president of media at marketing firm Society, Etc., said she expects Netflix’s ads to target budget-conscious consumers, with a strong focus on consumer goods, home goods and auto companies.
He doesn’t expect much pushback from viewers, mainly because Netflix is making it an offer.
“If you choose to have ads, it doesn’t leave a negative experience,” she said.
“They provide possibility and manage expectations.”
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