Ted Sarandos Explains Why Netflix Will Add New Ad-Supported Tier to Streaming Service

It’s official: ads are coming to Netflix.

Netflix’s Co-CEO Ted Sarandos, speaking at the Cannes Lions advertising festival on Thursday, confirmed that the future of the streaming giant will include ads, explaining the about face. Netflix had long been averse to advertising on its subscription service but after posting disappointing figures last quarter, showing it lost 200,000 subscribers, the company said would be introducing a less-expensive ad-supported tier to its service in a bid to bring in new customers.

“We’ve left a big customer segment off the table, which is people who say: ‘Hey, Netflix is too expensive for me and I don’t mind advertising,'” Sarandos said Thursday, speaking on the Cannes Lions stage with Sway podcast host Kara Swisher. “We adding an ad tier; we’re not adding ads to Netflix as you know it today. We’re adding an ad tier for folks who say, ‘Hey, I want a lower price and I’ll watch ads.'”

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Netflix’s presence at Cannes Lions — this is the first time the streamer has attended the global advertising confab — is a clear sign the company is looking to embrace the ad industry. Sarandos confirmed that the company is in talks with potential ad-sales partners. Sarandos will also be honored this year with the Cannes Lions’ Entertainment Person of the Year award.

It remains to be seen if a new advertising tier will prove the solution to Netflix’s growth problems. As the company’s share price has tanked, there has been growing speculation that the streamer could be the target of a takeover.

Sarandos admitted that a buyout “is always a reality, so we have to be wide-eyed about that” but insisted Netflix could return to growth on its own. “We have plenty of scale and profitability and free cash flow to continue to grow this business,” he noted.

The Netflix exec dismissed the company’s recent stock drop as part of the inevitable ups and downs in is still the fairly young business of online streaming.

“We’ve gotten through experiences where the market disconnects from [our] core business and you have to prove the thesis still works, and is going to work long-term. There’s a lot of uncertainty in the world today, and if they get anything that rocks the foundation of the narrative, they get nervous.”

Noting that streaming was still only “about 10 percent of what people do on TV,” Sarandos argued there was still “a lot of room to grow” for Netflix.

Sarandos again defended his stance in support of controversial Netflix comedy specials by Dave Chappelle and Ricky Gervais, saying Netflix have “always been a supporter of the art” and that the service is “programming to people with a real variety of tastes and sensibilities,” noting that what is deemed offensive differs from person to person.

“We won’t make everyone happy, but that’s the beauty of on-demand: you can turn it off. The reason comedy is hard is we don’t all laugh at the same thing. We all cry at the same thing so drama is a little easier to pull off, but when it comes to comedy, it’s all very different,” he said. “Part of the art form is to cross the line, and part of the art form means you only find where the line is by crossing it sometimes. Supporting expression is really important.”

Sarandos, however, acknowledged that he “should have been more empathetic” with some of his own staff at Netflix when they revealed they were upset at some of the content on the platform. “That’s the thing I regret, but the decision was very important globally,” he said.

He also defended Netflix’s record on LGBTQ+ content, noting “there are people from all over the world who are super offended by our LGBTQ plus content and they want it taken down and they think it’s super harmful. They think it’s destroying their society. And not only do we fight for it, we fight it all the way to the Supreme court. We’ve never taken them down anywhere in the world.”

The 2022 Cannes Lions runs through Friday, June 24.