Netflix's new subscription with advertisements launched on Friday, ending the streaming giant's model of offering content without commercials.
Adding an extra membership tier may seem like a minor move but it could have ramifications for the wider streaming landscape.
Does this mean all subscribers will see ads from now on?
No.
Only people who sign up to the subscription with ads — which is cheaper than the previous subscriptions — will see them.
"Members who don't want to change will remain on their current plan, without ads, at the current price," the company said in a letter to shareholders last month.
Wasn't Netflix anti-ads?
"Those who have followed Netflix know that I've been against the complexity of advertising, and a big fan of the simplicity of subscription," chief executive Reed Hastings said when announcing the plan.
"But, as much as I'm a fan of that, I'm a bigger fan of consumer choice."
Why launch a service with ads?
Marc C-Scott, a senior lecturer in screen media at Victoria University, said it was a bid to attract subscribers who want to watch Netflix content but don't want to pay as much for it.
But it could also be a way of converting consumers on the fringe into higher-tier subscribers.
Dr C-Scott said it was similar to other digital platforms, like games or apps, where you can get a free service with ads or limitations — once users grow to like the content, they may be more likely to pay to get rid of the annoyances.
"It's not a new model by any means," he said.
Why now?
Things are very different to when Netflix launched in Australia.
"When Netflix started, they were the one and the only," Dr C-Scott said.
"We now have a very different streaming market, there's more choice, more options.
"That's resulting in them rethinking the way they present themselves to their customers and how to gain customers."
Deloitte's Media Consumer Survey showed that Australians typically had more than one streaming service, with the average number of paid digital subscriptions per household growing from 2.3 to 3.1 in the past year.
The survey of more than 2,000 consumers, published last month, showed the average Gen Z had 4.5 subscriptions, millennials had 4.2 subscriptions and Gen Xers had 2.8 subscriptions.
Now, pair that with the current cost-of-living crisis.
Many people are making cuts to their budgets as their bills increase and, when people have multiple streaming services, cutting back on one or two of them might be an obvious choice.
This is also coming off the back of the pandemic, when people were spending more time at home.
"There were less external factors that impacted people's engagement with their services," Dr C-Scott said.
"People weren't going to the cinema, they weren't going out to restaurants — the entertainment dollars were sitting there.
"And they were sitting at home needing something to do and watch.
"Coming out of COVID ... that entertainment money people had spare, they don't necessarily have because there're out and about."
Netflix lost 1.2 million subscribers in the first half of 2022, marking the first time in 10 years that the streaming service's memberships went backwards.
Why is this a big deal?
Netflix is one of the key players in the international streaming market, self reporting 223 million paid memberships globally in a letter to shareholders in October.
By comparison, Disney+ reported 152 million subscribers in August (but if you add in Hulu and ESPN, the Walt Disney Company has 221 million subscriptions all up).
Dr C-Scott said Netflix has a big influence.
"Everyone will sit and watch and see what happens here," he said.
"But everybody has different business model and a different customer base."
He thinks other services will be taking into account what happens and weighing up whether it will work for them.
The Deloitte survey makes a similar point.
"While no single player defines the market, Netflix has been a substantial driver of disruption to date, and its rapid responses to saturation are already prompting competitors to respond with more innovative propositions," it said.
Are we likely to see other services go the same way?
Disney+ is already planning on launching a service with ads in the US in December and has suggested it could be broadened to international audiences next year.
"It'll be interesting to see what others do," Dr C-Scott said.
He thinks people will still want to pay more for ad-free subscriptions, but the ad-supported model will be replicated in different forms.
"More services will utilise it — it might be more of those niche services," he said.
Will it actually attract more subscribers?
Dr C-Scott reckons so.
"It's not going to hurt," he said.
"It's giving them those consumers that are on the fringe."
Deloitte's survey found 44 per cent of participants said they’d watch six minutes of ads per hour for a $5-per-month subscription.
And Dr C-Scott said that it might even do better here in Australia than places like the UK and the US.
That's because Australia's always had free-to-air television with advertisements, whereas places like the US have historically had much more pay-TV.
How is the new plan different?
Subscribers will be served four to five minutes of advertisements per hour of media watched, according to Netflix chief operating officer Greg Peters.
Mr Peters said subscribers would have a limited number of movies and TV shows restricted, due to licensing complications, although he said this was something the company was "working on".
Users won't be able to download content to watch offline, a feature offered to all other subscription tiers.
What type of ads will subscribers see?
Ads will be between 15 to 30 seconds long, play both before and during content and, unlike certain YouTube ads, users won't be able to skip them.
Eventually, Netflix — which is now operating in more than 190 countries — aims to provide "personalised" advertising, similar to how it recommends individualised viewing recommendations.
