The launch of an ad-supported subscription tier for streaming giant Netflix (NASDAQ:NFLX) was big news. Many investors believed that this could be the catalyst for something huge. This, in turn, may explain why Netflix shares slipped in Monday morning’s trading session after word emerged that it’s already reconsidering the ad tier. Not “reconsidering” as in “getting rid of,” but rather, more in the vein of “making changes to.”
Netflix took to France’s Cannes Lions Festival to speak to a range of advertising executives about its planned changes, starting with better targeting and some new advertising formats. One major plan called for the introduction of “episodic” advertising, in which ads functioned like small television series. Each ad would be interrelated with the others and would prevent subscribers from seeing the same ad over and over. This would be particularly prevalent where users were watching related shows, like binge-watching a series.
As it turns out, Netflix actually pulls in more money per subscriber with the ad-supported tier than it does from standard subscriptions. Given that standard subscriptions run $15 per month, that’s an impressive amount. Especially given how many users went for the ad-supported tier in the wake of the password crackdowns. With a deal with Microsoft (NASDAQ:MSFT) as Netflix’s advertising sales and tech partner coming to an end, this opened up new possibilities for Netflix to bring out and try. And that’s just what it seems to be going for.
Analysts, meanwhile, are somewhat mixed on Netflix’s future but leaning toward the positive. Indeed, 19 Buy ratings against 13 Holds and three Sells make Netflix stock a Moderate Buy. However, Netflix’s average price target of $406.26 means that it comes with 6.61% downside risk.