Netflix phases out Basic tier as ad options come up trumps

Netflix is to begin phasing out its Basic tier, the platform’s cheapest ad-free option.

The Basic plan was £7.99 ($9.99) a month and has been unavailable to new or returning users since the summer, but it will now be phased out completely beginning with the UK and Canada in the spring.

The announcement came after the streaming giant reported its glowing Q4 earnings for 2023 and a $5bn deal for the rights to World Wrestling Entertainment’s (WWE) Raw. 

The platform’s shares jumped nearly 11% on Wednesday after its earnings release, exceeding Wall Street’s estimates. Netflix gained 13.1 million subscribers in the last quarter reaching a record total of 260.8 million paying subscribers.

The streaming platform posted 12.5% higher revenue of $8.8bn, driven by the 13% growth in subscribers. It generated $1.6bn in free cash flow in the quarter, which is noteworthy given that older TV companies are mostly burning hundreds of millions of dollars on their streaming services still. 

While the success is impressive, the growth isn’t set to last since it comes as a result of the efforts made by Netflix to crackdown on password-sharing and the favourable roll out of its advertising tiers. 

“Netflix’s low churn can be factored to nailing their customer-centric experience model,” commented Theresa McEndree, CMO at Recurly, on the earnings. 

“From the recent password crackdown to offering tailored customer experience and seamless payment mechanics, Netflix is setting the bar high for streaming services.” 

Ad-free options will then be limited to two tiers: Standard and Premium at £10.99 ($15.49) and £17.99 ($22.99) a month respectively. The Standard with Ads tier costs a more manageable £4.99 ($6.99) a month. 

Netflix reported increases in ad-supported memberships of 70% quarter-on-quarter, with ad options now accounting for 40% of all sign-ups in supported markets.

However, Netflix is yet to clarify how current Basic subscribers will be affected when the option is finally retired.

Is Netflix’s ad business helping it finally take over TV?

This is the boost the platform needed to finally catch up with the sofa-speculations that Netflix is gaining momentum to take over TV.

The streaming giant is increasing its focus on ad-based content, emphasised by the Basic plan’s retirement.

Netflix also recently announced a $5bn deal that gives it exclusive streaming rights to WWE Raw in 2025, putting media companies in a chokehold as it demonstrates its growing competitive advantage over older TV companies. 

“With live events being adopted by more streaming services, we will see consumers moving away from linear TV,” said Oscar Wall, General Manager EMEA at Recurly. 

“Wrestling in particular is known for its strong and dedicated fan base. This decision will expand that community greatly, allowing Netflix to tap into a new audience and its sporting fanaticism.”

The rights to stream WWE’s Raw has been held by NBCUniversal’s USA network since 1993, with a five-year break in the early 2000s.

Netflix’s lead is only going to strengthen with the rights to Raw, which draws a couple million viewers a week.

Co-CEO Greg Peters acknowledged on the analyst call that the ad business will take years to become a significant business, but Raw should definitely help.

The weekly wrestling show serves a function similar to that of sports programming – it draws a large live audience, which advertisers will pay a premium to reach. 

But adding Raw is not without risk as it’s not cheap programming at $5bn a year. 

However, Kieren Mills, Head of Broadcast at Total Media said it was “a very smart move by Netflix to strike a deal with WWE”. 

He continued: “Not having to rely on dramas and films will ultimately see Netflix benefit, as the constant churn of content from WWE will provide quality entertainment in dry spells, which see subscribers pause or cancel their memberships.

“It also has the potential to introduce WWE to a new audience, similar to how it did with Friends. This move can tap into viewers who wouldn't actively seek out WWE on other platforms or behind sport paywalls, potentially resulting in increased revenue from a global deal. 

“Given the success of the Netflix-WWE collaboration, a UFC deal wouldn't be surprising in the future. Both companies meet the criteria of a global audience appeal, and considering their merger in TKO, such a partnership could be on the horizon."