Netflix Hopes Commercials Will Save Its Hide. But Biden Recession Is Seeing Significant Slowdown in Advertising

BOGOTA, COLOMBIA - SEPTEMBER 09: Reed Hastings, CEO and founder of Netflix, talks for the
Felipe Caicedo/ Getty Images for Netflix

Netflix is betting that a cheaper version of its streaming service with commercials will help save its hide as the company continues to deal with an unprecedented exodus of subscribers. But the Biden recession is throwing another hurdle in the company’s way: a significant slowdown in ad spending that is already hurting other streamers.

Ad spending is cooling across the board as companies curtail marketing in the face of record inflation and overall consumer pessimism. With families forced to pinch pennies thanks to soaring gas and food prices, corporations are rethinking expensive ad buys on TV and online.

The timing couldn’t be worse, or more just, for Netflix, whose executives enthusiastically campaigned for and poured million of dollars into Joe Biden’s 2020 presidential campaign.

The streamer is planning to launch its new, ad-supported tier in less than a year in early 2023. No word yet on pricing but it is expected to be cheaper than Netflix’s least expensive service, which goes for $9.99 a month in the U.S.

The advertising downturn is already impacting the streaming industry, with Roku reporting a “significant slowdown in TV advertising spend” during the second quarter. Roku, which offers a free ad-supported channel to its customers, blamed its weak financial results on the one-two punch of lower consumer spending and the subsequent advertising retrenchment.

“We expect these challenges to continue in the near term as economic concerns pressure markets worldwide,” Roku said in a note to its investors.

Advertising woes have also hit other Silicon Valley giants, including YouTube, which saw ad revenue rise 4.8 percent in the second quarter from a year earlier, the slowest since parent Alphabet began reporting that data.

Facebook’s parent company, Meta, fared even worse for the period, reporting its first quarterly revenue decline. The company is largely dependent on advertising for revenue.

Netflix has long resisted introducing commercials but the last two quarters have seen the streamer lose more than 1 million subscribers — something that was unthinkable less than a year ago. The company’s stock is down more than 60 percent so far this year, prompting executives to lay off hundreds of employees and rein in the streamer’s famously profligate spending habits.

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