Hollywood wants a stake in Netflix's ad-supported streaming service
The new service is rolling out in 12 markets this week to boost revenue
Gabriel Thomas (GT)May 8, 2025
Netflix's new ad-supported service will launch Thursday without the full range of programming on its premium platform as studios negotiate higher revenue for the rights to their shows with the streaming service.
Consumers will pay a lower $6.99 per month fee for the service and be able to see ads for it as Netflix tries to attract more people to its platform amid growing competition.
The new service will launch in 12 markets this week, just seven months after Netflix shocked its investors by abandoning its longstanding opposition to launching an ad-supported offering. Competitors like Hulu, Peacock, and Paramount Plus already have ad-supported versions, and Disney Plus plans to launch ads next month.
Selling ads is one way for Netflix leadership to generate new revenue streams. The company's subscriber base shrank for two straight quarters this year, leading to a halving of its market value.
In a presentation to reporters and investors, company officials acknowledged that not all premium content will be available on the ad-supported plan. But they said shows that spend 85 to 90 per cent of airtime on the service will be available, including popular series like The Crown.
Some studios want to see how well Netflix's ad-supported service works before deciding to add shows to the service, said a person familiar with the talks.
"It could be weeks after launch before they know more about what works and what doesn't before some contracts are signed," the person said.
Netflix doesn't own some of its most popular programs like Seinfeld, Gilmore Girls, and NCIS, but instead licenses them from competing studios like Sony, Warner Bros., and Universal.
Some of those licenses -- signed at a time when Netflix executives were still firmly against advertising on the service -- don't allow the content to run on the new service. In some cases, the contracts specifically prohibit the programs from being shown at an ad-supported level, should Netflix ever decide to introduce one.
According to people familiar with the matter, the studios have been negotiating licenses for the service with Netflix for months. That includes Sony, which while it doesn't have a streaming service, has adopted an "arms dealer" strategy of selling film and television rights to the highest bidder.
"If you're Sony, they'll take a pound of meat from you," said an executive at an investment group that buys media rights. "It's like going to a hotel. This [room] has a view of the sea and not of the mountains. You will have to pay more money."
Netflix said the new ad-supported service, which will cost $6.99 a month, isn't a "revenue-sharing" model at the moment, but the industry expects that position to change soon.
For the studios and talent, negotiations over the ad-supported streaming service present a bigger opportunity than just a share of the ad revenue. They also hope to recoup some of the performance fees they lost in the streaming era.
Under the current system, the talent behind Netflix hits like "Squid Game" weren't shared in their success. "It's not like Netflix is paying me a bonus. Netflix paid me under the original contract," Hwang Dong-hyuk, the series' creator, said last year.
With its subscription-based model, Netflix is able to provide far less data on how its shows are performing than traditional TV networks. But the company will be working with ratings service Nielsen starting next year to collect the detailed data advertisers are asking for.
A big question is whether this will "lead to performance-based pay for creatives," says Stephen Saltzman, head of international entertainment at law firm Fieldfisher. "I believe this will increase the pressure on Netflix to implement performance-based metrics and compensation for creators.
