Earlier this week the Wall Street Journal announced Netflix has plans for another rate hike, for subscribers, once the SAG-AFTRA strike negotiations with the Alliance of Motion Picture and Television Producers come to a conclusion. The negotiations have been ongoing. The reported rate hikes come at a time when Netflix ad sales chief Jeremi Gorman is leaving the company replaced by Amy Reinhard. Gorman joined Netflix in August 2022 to create an ad sales division from scratch for the streaming giant.
There have been reports Netflix executives plan to raise subscription fees in several markets worldwide including the United States and Canada. It is unsure how much the price increase would be or when the new rates would kick in. Presently, the Standard Plan (ad free with two streams) costs $15.49 monthly. The premium monthly rate (ad free with four streams) is $19.99. The ad supported tier costs $6.99 each month. The ad free tier was launched late last year. Earlier this year, Netflix dropped its $10 monthly basic ad-free tier to promote its less costly ad supported tier. The last time Netflix implemented a rate hike was in January 2022.
The expected price increase comes at a time when rival streaming providers have also announced rate hikes. In August Disney announced rate increases for Disney+, Hulu and ESPN taking effect next week. In July, Comcast announced its first rate increase for Peacock which took effect in August. Earlier this year, Paramount Global announced a rate increase for Paramount+ with the addition of Showtime. Warner Bros Discovery recently announced a rate increase for Discovery+. Netflix is one of the few prominent streaming services (along with Hulu) that has been profitable.
The Netflix price increase could also lead to more subscribers moving to the less costly ad supported tier. A survey from LG Ad Solutions released earlier this year found that consumers are concerned about rising entertainment costs. Among the findings include:
· 46% of consumers report canceling a streaming service because of economic concerns.
· 94% of consumers take some form of action to keep streaming costs low, selectively choosing which services to subscribe to (69%).
· 43% of consumers spend less than $50 a month on streaming services.
In an email Tony Marlow, CMO of LG Ad Solutions notes, “Ad-supported streaming seems poised for continued significant growth as it combines the dual benefits of cost-efficiency and content discovery for viewers, and its growth will spur a new phase of competition and innovation in the streaming space.”
Last November, Netflix launched an ad supported tier in the U.S. and 11 other global markets. This week, in a surprise announcement, its global ad sales president, Jeremi Gorman, suddenly departed, 13 months after joining the company. In a statement Gorman said, “My passion is scaling businesses from the early stages, which I have done many times — none more exciting than at Netflix. We’ve built a world-class team and laid the foundations needed to create a forever ads business,” said Gorman in a statement shared by Netflix. There were reports Gorman had been at odds with the ad strategy of Netflix.
Prior to joining Netflix, Gorman held several key management positions in digital media including Snap’s chief business officer and global head of enterprise advertising sales at Amazon. In a statement, Netflix Co-CEO Greg Peters thanked Gorman for, “building our ads business from scratch” in just a year, “attracting world-class brands” and “an incredible team.” Peters noted in Gorman’s roughly one year of service, “she’s built the foundations we need to succeed — attracting world-class brands to Netflix and an incredible team.”
Replacing Gorman will be Amy Reinhard, who had been vice-president of studio operations at Netflix. Reinhard joined Netflix as vice president of content acquisition in 2016. Previously, Reinhard had been at Paramount Picture as president of worldwide TV licensing and distribution. In a statement, Reinhard said, “I’m excited for this new opportunity and to join the exceptional team during this phase of growth. Together we will scale our advertising business and connect our incredible shows and movies with audiences and brands around the world.” As Mike Shields noted in his Next in Media podcast, “Clearly she is not an ad person.”
Peter Naylor, a well- respected digital ad sales executive who joined Netflix with Gorman last year and helped to develop the ad sales department, will continue as vice president of worldwide sales.
In its first ad sales upfront Netflix had set a CPM at the premium rate at a reported $65. Despite limited commercial inventory and premium content, there was speculation that Netflix had overpriced its offerings to the advertising community. There was a sluggish ad economy that resulted in a slower than expected start in negotiation. Eventually, with a buyer’s market, Netflix dropped its asking price to be more in line with the marketplace.
Also, with the writer’s strike last May, Netflix decided to forego its much anticipated first upfront event to advertisers at the Paris Theater. While Disney, NBCU and others continued with a more scaled down live presentation (with picket lines), Netflix opted to replace its live event with a virtual presentation. During the summer, Ad Age had estimated that, in the U.S., Netflix had only 2 million subscribers to the advertising tier.
In its second quarter earnings report released in July, Netflix reported revenue growth of 3% to $8.2 billion, but advertising was described as not yet “material”. Netflix said, “We expect revenue growth to accelerate in the second half of 2023, as we start to see the full benefits of paid sharing plus continued steady growth in our ad-supported plan.” Over time, Netflix has set a goal of advertising accounting for a minimum of 10% of total revenue.
Netflix also made several other personnel changes as they restructured. Bryony Gagan, Amy Paquette and Tim Mizrahi, who are all VP, business and legal affairs, and Stephen Zager, VP and Associate General Counsel, Corporate Legal will all be leaving. In addition, Eunice Kim has been promoted to chief product officer and Elizabeth Stone is now chief technology officer.
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