Analysis: Netflix Ad-Supported Tier to Generate Extra $5.5B in Revenue by 2027
After Netflix reported its first quarterly subscriber decline in a decade during the first three months of the year, the streaming giant shocked many observers by announcing that it would launch an ad-supported tier, something the company had long vowed that it would never do.
Last month, the streamer confirmed that it planned to introduce the subscription option early next year and is no doubt looking forward to a massive new revenue stream, both from additional subscribers and newly found ad dollars. But, how much revenue can Netflix expect to earn? A new analysis looks at that question.
According to a new report from Ampere Analysis, Netflix’s global advertising income will rise to $5.5 billion by 2027, with $1.7 billion coming from the U.S. market, the most from any individual country. With subscriber totals in flux, Ampere believes that this will generate $2.2 billion more in revenue for Netflix in 2027 than the company would make if it continued without ads.
“Specifically, the ad tier is expected to increase the group’s revenue by 4.9% in 2023 and 7.1% by 2027 compared to the current business model,” Ampere said. “Assuming that the ad tier launches at $5.99 in the US, with pricing adjusted on a relative basis globally, and based on price elasticity analysis, Ampere calculates that the ad tier will see a 3.2% subscriber uplift, with the remainder of ad tier customer migrating from the existing customer base.”
Ampere also predicted that one in five Netflix users will be on the ad tier by that year. Different surveys have generated mixed expectations as to how many subscribers will sign-up for the service’s ad-supported tier and how many current subscribers will opt to downgrade to the lower-priced option.
“The ad tier is primarily a customer retention tool in the US, with sign-ups coming largely from Netflix’s existing subscriber base. The US ad tier will be an effective measure against a shrinking and less engaged audience rather than a new customer acquisition tool.” Ampere analyst Ben French said. “Increasing advertising rates will grow total ad income over time, offsetting the negative impact of a fall in viewing.”
In the second quarter, Netflix reported a loss of 970,000 subscribers, which was fewer than it had forecast in the previous quarter. Although the streamer did post an 11.67 million subscriber increase year-over-year and projected that it would gain 1 million customers in the third quarter of 2022.
If the world’s largest streaming service is able to somewhat right the ship in terms of customer acquisition by the time it launches its ad-supported option, it could significantly impact the company’s financial future.
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.