Netflix is set to discontinue its $11.99 per month ad-free Basic streaming plan later this year as part of a strategic move to encourage subscribers to opt for other, more lucrative tiers. The elimination of the Basic plan, scheduled for the spring, will compel users to either upgrade to the $15.49 Standard plan or the $22.99 Premium plan, both of which remain ad-free. Alternatively, customers can choose to switch to the $6.99 ad-supported plan.

The streaming giant is rolling out this change initially in Canada and the UK, with plans to expand further based on its impact. This decision, outlined in Netflix's fourth-quarter shareholder letter, signifies a shift in the company's approach, especially since it previously declared a commitment to an ad-free experience. However, ads have emerged as a significant revenue stream, constituting 40 percent of new sign-ups for Netflix.

The shareholder letter highlights a substantial increase in ad memberships during Q4 '23, with a nearly 70 percent quarter-over-quarter growth. The improvements in offerings, such as downloads, and the discontinuation of the Basic plan for new and returning members in ad-supported markets contributed to this surge.

Co CEO Greg Peters, in a video interview for investors, emphasized Netflix's efforts to enhance marketing strategies by making ad plans more appealing, engaging with partner channels, and adjusting pricing structures where deemed appropriate. Peters justified the appeal of the ad-supported tiers by asserting that they offer better value than the Basic plan, providing additional streams, higher resolution downloads, and access to content at a lower effective price.

Despite these advancements, Peters acknowledged that Netflix's advertising business is still in the early stages of development, stating that there are "years of work ahead" before it becomes a substantial revenue source. He identified scalability as a top priority for their advertising efforts. Alongside the announcement of the Basic plan phase-out, Netflix revealed an impressive addition of 13 million new subscribers at the close of 2023, solidifying its position as the most popular streaming service globally with over 260 million total subscribers.