Netflix's Clever Price Framing Will Ring The Register On Ad-Supported Plan

Oct. 14, 2022 11:15 AM ETNetflix, Inc. (NFLX)14 Comments


  • Netflix will have significantly more attractive economics on the ad-supported plan than on its basic and premium plans.
  • The plan pricing is cleverly framed as both "significant savings" vs. existing plans and as cheaper than competitors.
  • In effect, Netflix is paying subscribers significantly less than $1/hour to watch ads.
  • At a Hulu-comparable $30/CPM, it would make at least $3.60/hour in advertising revenue, making adoption of ad-supported plans a juicy profit machine.
  • Behavioral economics biases (availability bias, framing, etc.) line up to promote adoption.

A Person holds an Apple TV remote using the new Netflix app with a hand. Netflix dominates Golden Globe Nominations. Illustrative

Marvin Samuel Tolentino Pineda

Why I see opportunity here

I rate Netflix (NASDAQ:NFLX) a cautious buy. The ad-supported plan has the makings of one of the few moves that could revive Netflix's prospects. Its Oct. 13, 2022, announcement

This article was written by

I am the Managing Partner of EBITDA Catalyst, a boutique advisory firm specializing in Pricing strategy, analytics and execution. Our clients are consumer brands, SaaS/software companies, and PE firms whose portfolio companies have monetization, pricing and revenue opportunities that require specialized expertise.I have a CFA and CPP (Certified Pricing Professional), and I exclusively write on investment ideas that are related to a company's pricing strategy and pricing power. I seek to use my expertise in Pricing to identify situations where changes in a company's Pricing strategy will result in significant valuation changes and long/short opportunities. In particular, companies whose results depend on a narrow set of products and services, and who make far-reaching changes in their pricing for such offerings, often set up deep swings in profitability in subsequent quarters. Though relatively rare, such specific situations present opportunities where the intersection of investment analysis and pricing strategy expertise can result in superior risk-adjusted returns, sometimes within the short or medium term.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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