While it is early days for Netflix Inc.'s ad-supported service, co-CEO and Chief Content Officer Ted Sarandos believes the product will ultimately expand the company's revenue and its total addressable market.
"It will become important as it grows because I think it's a way that people will pay with attention, versus a credit card," Sarandos told investors at an industry conference Dec. 6. "This is a way of expanding the offering to our members. ... The more choice we have given in the past, ultimately, [it] has been market-expanding."
The ad-supported offering bowed Nov. 3, priced at $7 a month. Sarandos did not give an early take rate but positioned the ad product as a hedge of sorts as the company looks to address password sharing.
"You think about potential for a softer landing for folks either who are paying for the first time or have some economic strain today," the executive said.
As to how the new tier might impact existing subscribers, Sarandos said he expected most would keep their same level of service.
"We don't think we're going to see a lot of migration in the plans. ... Mostly because they're satisfied with the product that they joined for," he said.
About 90% of the programming watched on Netflix is available in the ad product. Negotiations with licensors continue and over time "you should expect complete parity," Sarandos said.
Sports scenarios
Unlike other streaming services, Sarandos does not expect Netflix to pursue major live sports packages.
Amazon.com Inc. has the NFL's "Thursday Night Football" package as well as Premier League soccer in the U.K. Apple Inc. offers Major League Baseball doubleheaders on Friday nights and has a global Major League Soccer pact.
Meanwhile, NBCUniversal Media LLC and Paramount Global offer live sports via their aggregate streaming services, Peacock and Paramount+. Walt Disney Co. counted 24.3 million subscribers to ESPN+, the streaming version of its popular cable sports network, as of Oct. 1.
Netflix does not see a path to profitability in terms of big sports programming, Sarandos said.
"In terms of watching, it's very popular," he said. "We are not anti-sports, just pro-profit."
While it may not be interested in high-profile, big-ticket leagues, the company has explored other athletic options.
Netflix was outbid by ESPN (US) for Formula One rights in the U.S., and media reports have indicated the company looked into rights to various tennis and cycling events.
Sarandos said the company remains open to offering sports at some point in the future if the economics work out.
