Ad-Supported Tier Could Grow Netflix Revenue by Over 20%

Since announcing that the streaming service had lost 200,000 subscribers during the first three months of the year, Netflix has subtly adjusted its goals from uninhibited subscriber growth at all costs to incrementally increased revenue per customer.

The first hint of this slightly different philosophy came during the company’s April earnings call in which the executive team reported that they would be expanding efforts to curtail password sharing. However, instead of attempting to turn the estimated 100 million worldwide households that use the service without paying into traditional subscribers, they hope to make them “sub-accounts” on existing subscriber plans, thus increasing the revenue from that account while making those most of viewers who are already interested in the service.

If successful, that move should provide a significant revenue bump for the world’s largest streamer, but it will likely pale in comparison to the added income from their soon-to-launch ad-supported tier. According to a new report from The Information, by introducing an ad-supported option for budget-conscious customers, the streaming giant could generate an additional 21% in annual revenue.

By pulling information from streaming competitors that also operate both ad-free and ad-supported tiers, The Information estimates that Netflix could add north of $703 million thanks to advertising alone, not including the additional subscriber fees. The basic monthly plan on the service is currently $9.99 per month with a $15.49 standard option and $19.99 premium plan also available.

Related: How Will Netflix Incorporate Advertising into Lower-Cost Tiers?

Of course, the number of commercials that Netflix chooses to run per hour will influence how much ad revenue they will generate. At last week’s upfront presentaton, Disney+ revealed that they plan to average four minutes of advertising per hour on their ad-supported tier debuting later this year. At the Warner Bros. Discovery presentation, the company announced that ads on HBO Max were currently averaging between two and three minutes per hour.

Both streaming services also limit what content is ad-supported — Disney+ won’t put ads on kids’ content and HBO Max doesn’t throw commercials in or around HBO programming — so how Netflix chooses to handle some of these questions will certainly impact their bottom line.

But, in the first quarter of the year, Netflix generated $7.868 billion globally and is forecasting an $8.053 billion haul in Q2, despite anticipating a 2 million subscriber decline. Amongst U.S. and Canada’s 74.58 million subscribers, Netflix averages $14.91 per account per month; so if curbing password sharing and introducing ad-supported viewing options can offset domestic subscriber losses that will almost certainly be considered a win for the service’s executives and shareholders.