Latest / The CMO Podcast with Fexingo: Marketing Leadership, Budgets, and Executive Strategy / Why Netflix Abandoned the Ad-Free Premium Tier
Transcript
- Lucas: If you've opened Netflix in the past few weeks and noticed the Premium ad-free plan has quietly disappeared from your account settings in certain markets — you're not imagining it. Luna: Wait — they actually killed the top-tier no-ads plan? I thought that was their flagship product. Lucas: It was. But as of late Q1 this year, Netflix stopped offering the Premium plan to new subscribers in Canada, the UK, and a handful of European markets. Existing subscribers can keep it — for now — but the message is clear: Netflix wants everyone on ads eventually. Luna: That's a huge swing from where they were even three years ago, when ads were something they swore they'd never do. Lucas: If this episode has given you a new angle on where streaming marketing is headed, that's exactly the kind of thing that keeps this show ad-free. Listener support is what makes that possible — you can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep these conversations going without any sponsor breaks. Appreciate anyone who chips in. Lucas: Alright — so back to Netflix's strategy. The decision to phase out the ad-free Premium tier is really a bet on two things: higher average revenue per user from the ad-supported tier, and growing advertiser demand for premium streaming inventory. Luna: And I imagine the math only works if enough subscribers stay rather than downgrading to the cheaper ad-supported plan. Lucas: Exactly. Netflix's ad-supported tier currently costs about $6.99 in the US — half the price of the old Premium. But when you factor in the ad revenue per user, Netflix probably makes more from that $6.99 subscriber than from the $15.49 ad-free Standard plan. Luna: So it's not just about getting people onto ads — it's about getting the right people. Premium subscribers are the most valuable, but they're also the most likely to churn if you take away what they paid for. Lucas: Right. And that's why Netflix is moving slowly. They're grandfathering existing Premium subscribers, at least for now. That buys them time to see how many voluntarily switch to ad-supported or downgrade to Standard. Luna: Disney took a different approach — they launched with a hybrid model from the start, but they've never removed the ad-free option entirely. Lucas: Disney's ad-free tier is still front and center. But Disney's ad-supported tier has grown faster than expected — it now accounts for about 40 percent of new US subscribers. The difference is, Disney hasn't forced anyone off the ad-free plan. They're using pricing incentives instead. Luna: Which is gentler, but slower. Netflix seems to be saying: we want to accelerate the shift, even if it ruffles some feathers. Lucas: And it is ruffling feathers. There's been a noticeable spike in social media complaints from long-time subscribers who feel like they're being pushed out. But Netflix's churn data probably tells a different story — the people who complain loudly aren't always the ones who actually leave. Luna: So what's the marketing angle here? How do you communicate a move like this without alienating your most loyal customers? Lucas: That's the core challenge. Netflix has been positioning the change as a simplification of their pricing — fewer plans, clearer choices. They're not saying 'we're getting rid of ad-free.' They're saying 'we're streamlining our offerings to better serve you.' Luna: Classic framing. Make it about the customer benefit rather than the revenue motive. Lucas: Exactly. And they've been careful about which markets they test it in. Canada was the first — a smaller, English-speaking market where they could gauge reaction before rolling out more broadly. The UK and parts of Europe followed. Luna: Any word on whether the US is next? Lucas: Nothing official, but analysts expect a US test sometime in the second half of this year. If the Canadian and UK metrics hold — ad-tier subscriber growth, revenue per user, churn — the US rollout is almost inevitable. Luna: Let's talk about the advertiser side. What's the appeal of Netflix's ad inventory compared to, say, YouTube or Hulu? Lucas: Prestige, for one. Netflix has historically been ad-free, so getting your brand into that environment carries a certain cachet. Plus, Netflix's content is high-engagement — people watch with full attention, not in a second-screen mode. Luna: And they've been building out their ad tech. They acquired a small ad-server company last year and have been working on better targeting and measurement. Lucas: Right. The initial ad tier was very basic — limited frequency capping, no real targeting beyond country and age. But they've been improving. By the end of 2026, they're expected to offer more granular audience segments and maybe even interactive ad formats. Luna: So the ad product is getting better just as they're pushing more subscribers onto it. Lucas: That's the playbook. Grow the ad subscriber base, improve the ad product, increase ad revenue per user. Over time, the ad tier becomes the core business, and the ad-free tier becomes a premium upsell — or disappears entirely. Luna: It's a bold bet. But it's also a signal that the streaming industry's economics have fundamentally changed. Content costs are still rising, subscriber growth is slowing, and the only lever left is pricing — but pricing has limits. Lucas: Advertising is the escape valve. Every major streaming service now has an ad-supported option, and the ones that don't — like Apple TV+ — are the exception, not the rule. The question is how far they'll go. Luna: Do you think we'll see a fully ad-supported Netflix within five years? No ad-free option at all? Lucas: I think it's possible, but not probable. There's a segment of subscribers willing to pay a premium for no ads, and that's a profitable niche. More likely, we'll see the ad-free option become more expensive and the ad tier become the default. Luna: Kind of like what we see with airlines — basic economy versus premium economy. The base product has ads, and you pay extra to remove them. Lucas: Exactly. And that model has proven incredibly profitable for airlines. The question is whether Netflix can execute it without losing the subscriber goodwill that made them dominant in the first place. Luna: It's a marketing challenge as much as a product one. How do you position ads as a feature, not a downgrade? Lucas: That's the billion-dollar question. And Netflix seems to be betting that the answer is: make the ad tier cheaper, make the ad experience better, and frame the ad-free tier as a luxury good. If they get it right, they could set a template for the entire industry. Luna: And if they get it wrong, they risk accelerating the cord-cutting that streaming was supposed to replace. Lucas: Right. But given the numbers — Netflix's ad tier now accounts for over 30 percent of new sign-ups globally — the momentum is clearly on the ad side. The question is whether that momentum is sustainable. Luna: I suppose we'll have a clearer picture by this time next year. Lucas: Exactly. For now, it's one of the most interesting marketing strategy shifts in media — and a reminder that even the most successful brands have to reinvent their business model eventually.