Netflix Ad-Supported Tier Will Have Better Economics Than Ad-Free One, COO Greg Peters Says

deadline.com:

The economics of Netflix’s forthcoming ad-supported tier will be more favorable than those of its primary ad-free one, one senior executive indicated during the company’s second-quarter earnings interview.Greg Peters, the company’s head of product and chief operating officer, offered detailed commentary about the strategic push into advertising.

Co-CEO Reed Hastings stunned the entertainment industry, Wall Street and Madison Avenue by revealing last quarter that the company was planning to roll out an ad-supported tier.Asked during the company’s quarterly earnings interview about the outlook for customers of the ad-free service “trading down” to the cheaper, ad-supported one, Peters said the company doesn’t see any downside risk in that sort of shift.“We know there’s some price sensitivity around consumers,” he said. “When we’ve run the models and in talking to our members and advertisers, to Microsoft, we look at the monetization that is a complement to the subscription part of that offering and we’re quite optimistic that the unit economics work to make that monetization equal or maybe even better than what we would see on the comparable (ad-free) side.”By attracting (in theory) more members lured by a lower price point, Netflix will prosper as a business, Peters said, it will be “neutral to positive” for the overall business.

Market demand, he reiterated, is “quite strong,” which will help overall volume of advertising.CFO Spence Neumann didn’t offer an expected percentage, but he echoed the comments by Peters by stressing that “it’s not like all of a sudden all folks on ad-free Netflix are going to join ad Netflix.