Netflix will see sluggish ARPU growth for ad tier moving forward
Netflix will see sluggish ARPU growth for ad tier moving forward
A new study suggests that revenue per user on Netflix’s advertising tier will continue to be outpaced by its ad-free plans.
The journey into ad-supported streaming is a marathon, not a sprint for Netflix. The streaming service, which recently announced that it has crossed the of 300 million global customers threshold, is still not seeing explosive growth from its ad-supported “Standard with Ads” plan, first introduced in late 2022. Global advertising revenue is on the rise for Netflix, but new data from Bernstein Research shows that the streamer’s average revenue per member (ARM) on its ad plan will continue to lag behind that of its ad-free tier.
Key Details:
- Ad revenue for Netflix will jump to $4 billion in 2025.
- Bernstein doesn’t foresee the gap between ad-supported and ad-free revenue per member to close in the near future.
- Netflix recently announced a price increase on all of its streaming plans.
Netflix’s global advertising revenue is expected to surpass $4 billion this year, more than double what it was able to pull in in 2024. Over the next two years, revenue from advertising will continue to climb, until it will exceed $8 billion by 2027.
Despite those projections, average revenue per member on the ad-supported video-on-demand (AVOD) side of Netflix is not expected to grow at the same rate as that on the ad-free tier, according to Bernstein’s data. The total advertising revenue will see major increases thanks to the plan’s expansion around the world as more consumers will have the as-supported option available. However, the ad-free plans’ ARPU will be buoyed by increasing prices.
“With our base case assumption of 5% [growth rate] on effective CPM and flat average consumption per subscriber, we don’t expect that ARM [average revenue per member] gap between the AVOD tier and non-AVOD tiers to close in the foreseeable future,” Bernstein media analyst Laurent Yoon said.
A new round of price increases should help Netflix grow its revenue per member metric; Netflix recently increased subscription rates on all its domestic streaming plans. However, the ad-free Netflix plans will continue to generate more money for the streaming service than the ad-supported one.
“While AVOD helps to drive subscriber growth and generates additional advertising revenue, it’s still dilutive to the overall ARM,” Yoon says. “Based on our estimates, ARM for the AVOD tier in UCAN is $17.21 in 2024, which is lower than the average price of [Netflix’s] Standard and Premium tiers.”
Bernstein also expects Netflix to see a 70% increase in the number of ad-supported viewers it has in the United States and Canada in 2025, growing from 16.4 million to 27.9 million. The latter figure will mean that 30% of the streaming giant’s UCAN total will be on the ad plan by the end of the year. That data supports a recent survey which shows that over half of Netflix's customers are still on ad-free tiers, despite the push toward ad-supported.
Netflix would love to see its ARM for ad-supported plans increase. Ad revenue paired with subscription memberships make this a more potentially lucrative source of revenue for the streamer overall, but as of now, Standard with Ads is still having trouble closing the revenue gap between it and Netflix’s ad-free plans.
Netflix
Netflix is a leading subscription-based video streaming service that offers on-demand access to an extensive library of over 3,000 movies, 2,000+ TV shows, and a growing collection of acclaimed Netflix originals. Renowned for producing groundbreaking content, Netflix has become a cultural powerhouse with hit originals like “Stranger Things,” “Wednesday,” “Squid Game,” “The Crown,” “Tiger King,” “Bridgerton,” “The Witcher,” and “Black Mirror.”