Publications
Publications
- August 2022 (Revised March 2023)
How Should Netflix Add an Ad-Supported Tier?
By: Elie Ofek and Olivier Toubia
Abstract
In the summer of 2022, it became clear that Netflix would introduce an ad-supported tier alongside its existing subscription plans in the near future. Speculation abounded as to the details of the new tier: How many minutes of advertising would it include? What picture quality would it offer? How many screens could be viewed at the same time? And, critically, how much would it cost the consumer per month? In this exercise, students are tasked with trying to assess whether Netflix should indeed go ahead with introducing a new ad-supported tier – and if so, how? – or whether the company would be better off sticking with its existing tiers and repricing them – and if so, by how much? Students need to evaluate which of these options would maximize the number of subscribers, and importantly, profits. Students have at their disposal results from market research (specifically a conjoint analysis study), financial reports, and industry data. The exercise also allows for a conceptual discussion of the merits of alternative revenue models: ad-driven vs. pure subscription-driven vs. a hybrid of the two.
Keywords
Pricing; Television Industry; Price; Marketing Strategy; Digital Platforms; Customer Value and Value Chain; Competitive Strategy; Customer Satisfaction; Entertainment and Recreation Industry
Citation
Ofek, Elie, and Olivier Toubia. "How Should Netflix Add an Ad-Supported Tier?" Harvard Business School Exercise 523-033, August 2022. (Revised March 2023.)