Analysis: Nearly 60% of Netflix Subscribers to Be on Ad-Supported Tier in Five Years
The past six months have been a tumultuous time for Netflix. The world’s largest streaming service lost 1.17 million subscribers in the first two quarters of the year and its stock price — and reputation — have taken a series of hits ever since.
However, as the company prepares to launch its first-ever ad-supported subscription tier, reportedly before the end of the year, technology research firm Omdia sees massive growth in the streamer’s revenue over the next five years.
Omdia estimates that by 2027, nearly 60% of Netflix worldwide customers will be subscribed to the service’s ad-supported tier, both as the lower-cost option attracts new cost-conscious consumers, and existing subscribers opt to downgrade from the premium to commercial plans. But, that doesn’t mean that the company will be losing money.
This change will coincide with a near doubling in online advertising revenues during the same time period, meaning that subscription video-on-demand (SVOD) services are expected to see a $32 billion surge in incoming advertising dollars. Therefore, it is anticipated that even if Netflix sheds a considerable number of customers from its higher-priced tier, as long as those subscribers opt for the ad-supported option, the streamer will actually end up making more money per account; a data point that is quickly becoming far more important across the industry than raw subscriber totals.
Netflix will reportedly not run ads on children's programming and profiles, and will limit the number of ads per hour to roughly four minutes. However, even with those limitations, Omdia’s estimates indicate that Netflix will generate nearly one-quarter (23%) of its U.S. revenue from in-stream commercials by 2027, but only 14% worldwide.
The firm also believes that Netflix will avoid muddying its premium reputation by placing banner ads in other places on the platform, like free streaming hubs like Roku do.
But, while customers remaining on the ad-free tier, and the fees for those on the ad-supported option, subscriber revenue will still be the company’s main source of income, with the added cash flow and massive subscriber base, Netflix has the opportunity to continue to assert its dominance in the overall media and streaming industries.
“Netflix is expected to generate just under a quarter of its revenue from advertising by 2027 in the US,” Omdia senior research director Maria Rua Aguete said. “With growth in SVOD expected to increase from $86 billion in 2022 to $118 billion in 2027, it comes as no surprise that all the major SVOD services including Netflix want to take part in that growth.”
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.