Netflix Still Expects Ad-Supported Tier to Bring in Big Money in Coming Years, Despite Lukewarm Launch
There’s no doubt Netflix would have preferred that the new ad-supported tier it launched in November to have attracted millions of new subscribers on its first day, but that was never a truly realistic goal. The company has seen slow growth on its new tier thus far, but executives are preaching patience.
Netflix representatives spoke with investors and media members during their fourth-quarter earnings call on Jan. 19, and said that the plan for the ad-supported tier has always been to crawl before walking — and walk before running. Apparently, no one at Netflix expected it to be in immediate competition with services like Hulu that have been offering ad-supported video-on-demand (AVOD) services for a decade.
“I just want to emphasize, it’s a multiyear path,” said Netflix CFO Spencer Neumann. “So we’re not going to be larger than Hulu in year one. But hopefully, over the next several years, we can be at least as large, and we wouldn’t be getting into [ad-supported streaming] obviously if it couldn’t be a meaningful portion of our business.
Netflix’s Basic with Ads plan has accounted for just 12% of new sign-ups since it launched, but no one at the company is sounding the alarm just yet. Co-CEO Greg Peters called the growth of the new plan “solid,” and said that user engagement numbers indicate those who are now subscribed to the ad-supported tier are satisfied with it.
Overall, the company still sees its ad-supported tier as a big potential source of revenue in the future.
“We’re over $30 billion of revenue, almost $32 billion of revenue in 2022,” Neumann said. “And we wouldn’t get into a business like this if we didn’t believe it could be bigger than at least 10% of our revenue and hopefully much more over time in that mix as we grow.”
That goal is more or less in line with estimates from industry analysts which suggested that Netflix could generate as much as $5.5 billion from the ad-supported tier by 2027. Neumann’s rough figures suggest the company wants to see at least $3.2 billion from the tier in coming years, though he declined to put a rigid timeline on when he thought that goal might be achieved.
Netflix added more than 7.5 million new users in Q4 of 2022, growing to a global total of 230.75 million overall, so it has time to be patient, especially as the ad tier is not yet available in every region. Anti-password sharing measures coming later this quarter will likely drive new users to the ad-supported tier, and the company also intends to improve its ad targeting so that users will see commercials more relevant to them in the future.
Netflix
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