Arsema Thomas as Young Agatha Danbury in episode 105 of "Queen Charlotte: A Bridgerton Story."

Because Netflix just killed its cheapest ad-free plan

This would probably be a good time for the IndieWire staff to buy tickets to the Powerball (a $1 billion jackpot!): As we predicted last year, Netflix has eliminated its cheapest tier with no commercials “for i new or returning members” in the US, as well as the UK. This means that current “Basic” tier subscribers can stay with the plan until they choose to select another one or cancel their Netflix account.

The same change happened about a month ago in Canada; Netflix changes often pass through our northern border.

The problem was the economy. Netflix wants to direct subscribers to its ‘Standard with Ads’ plan, which starts at $6.99 in the US and £4.99 in the UK, or its ‘Standard’ plan with no ads. That costs $15.49 a month in the US and £10.99 in the UK, and that’s what you probably have.

“Standard with Ads” lacks what Netflix qualifies as “certain movies and TV shows” compared to the more expensive tiers. Allows a family to stream to two devices simultaneously in “Full HD”. The use of the mobile game is unlimited, but let’s be honest, nobody does that anyway.

The ad-free version has all those ad-free things missing, shows and movies, and adds the ability to download to two supported devices at a time. The tier also introduces the ability to add one (read: one) extra member who doesn’t live in the same house for $7.99 a month.

Netflix also offers a ‘Premium’ plan for $19.99 (£15.99) a month. “Premium” is for techies and families with older children. It adds spatial and Ultra HD audio and offers the ability to watch simultaneously on four devices and download on six. It also features the ability for a family to add up to two external users for $7.99 each.

Each of the three remaining plans gives Netflix a higher potential ARPU (average revenue per user) than “Basic,” and there’s still an affordable entry point for consumers. Even at $6.99, the affordable “Standard with Ads” plan brings in (or has the potential to bring in) more than $9.99 a month; advertisers who (more than) make a difference.

In September, this reporter wrote that four tiers felt “like one too many” and that the “distinctions between (Basic and Basic with Ads) in both price and features” didn’t “seem aligned with the jumps to the streamer’s higher tiers – level levels”.

At the time, media analysts expressed concern about “Basic with Ads” cannibalizing the ad-free version. As it turns out, we were both pretty prescient.

From the outset, Netflix co-CEO Greg Peters predicted that subscribers to its new ad tier will have a “neutral to positive” impact on revenue compared to those of the ad-free plan. Wall Street agreed: Since the November 3, 2022 US launch of “Basic with Ads,” the price of Netflix (NFLX) stock has more than doubled to nearly $480 today. The company’s password sharing crackdown, first launched in the US in May, has contributed to that surge.

Peters and his fellow Netflix senior executives will reveal the company’s second-quarter earnings (and subscriber growth) this afternoon. A video interview with the streamer’s executives will be posted on YouTube at 6 PM ET.