Why an Ad-Supported Pricing Tier Makes Sense for Netflix

A prediction that Netflix (NASDAQ: NFLX) would lose 4 million subscribers in the United States in 2020 has ignited a debate over whether the streaming leader should add a cheaper ad-supported pricing tier. The reality is that Needham analyst Laura Martin, the person who made that prediction in a note to clients, has severely misread the market.

Netflix will face increased streaming service competition in 2020 from Walt Disney, Apple, Comcast, and others. That may put some pressure on the company's growth and increase its churn rate, but it's silly to think that Netflix will go from adding 2.1 million U.S. subscribers through three quarters of 2019 to losing 4 million next year.

Martin has underestimated Netflix's content volume advantage, and she clearly does not understand its place in the market. The streaming leader has become a default for consumers who have cut the cord, and many who have not. That makes it very unlikely that added competition will cause people to leave -- but that does not mean Netflix should not consider an ad-supported tier.

Source Fool.com