Earlier this year Netflix announced that the world’s largest streamer would launch an ad-supported tier option in the relatively near future. Since then, there has been a lot of speculation as to what this new tier would offer customers. While the service has not officially announced any of the specifics about the upcoming subscription option, the streaming giant is expected to launch its new tier as early as next month, despite officially announcing that it would roll out in early 2023.
Wall Street and industry analysts have been debating how much additional revenue the lower-cost, ad-supported tier would bring to the company, with some indicating that the launch could generate an additional $5.5 billion by 2027. However, a new estimate from JPMorgan analyst Doug Anmuth is now suggestion that Netflix could see more immediate returns.
Assuming that the company sticks to its current release plan, analysts project that Netflix could see upwards of $600 million from the U.S. and Canadian markets alone in 2023. This is on par with the five-year projections but indicates that customers will be open to the new option as soon as it is released.
Anmuth believes that Netflix will grow by north of 22 million subscribers in the U.S. and Canada alone by 2026. In July, the streamer reported having 73.28 million customers on its premium service. The analyst believes that Netflix will see an additional $2.65 billion in advertising sales in the region alone over the next three to four years.
“Given Netflix’s recently muted sub growth, advertising is critical to re-accelerating revenue, expanding Netflix’s SAM [subscription addressable market], and driving greater profitability,” Anmuth said according to Yahoo! Finance.”The Netflix narrative has shifted from slow/no sub growth on the current business to advertising and paid sharing coming in 2023.”
With domestic subscriber growth essentially at the saturation point for Netflix, the ability to pull in new subscribers at a lower-priced tier is very valuable after the service saw a decline of 1.17 million subscribers in the first two quarters of 2022. However, adding new subscribers likely isn’t the main focus of launching the new tier. Analysts expect that up to 60% of the streamer's customers will be on the lower-priced plans over the next five years, meaning that the subscription revenue will likely fall dramatically.
However, with the added billions in advertising income, the average revenue per subscriber will likely increase. As streaming adoption has slowed in recent quarters, this data point has become the more telling stat for companies as they look to scale towards profitability.
While some analysts are still pushing back against the projected revenue growth from Netflix’s ad-supported release, the numbers seem to be more favorable than not. Further confirmation of their net positive future rests in subscriber estimates.
A recent data release from Samba TV reported that over 90% of non-Netflix subscribers use other ad-supported streaming services. All things considered, $600 million over the next year or so seems reasonable, especially with such a large market of untapped ad-supported viewers.
Netflix
Netflix is a subscription video streaming service that includes on-demand access to 3,000+ movies, 2,000+ TV Shows, and Netflix Originals like Stranger Things, Squid Game, The Crown, Tiger King, and Bridgerton. They are constantly adding new shows and movies. Some of their Academy Award-winning exclusives include Roma, Marriage Story, Mank, and Ma Rainey’s Black Bottom.