Netflix believes ads will account for minimum 10% of its revenue

Streaming giant Netflix said that it’s satisfied with the current progress of its $7 ad-supported tier and believes it will eventually drive at least 10% of its annual revenue, as reported by Marketing Dive.

On Thursday, the company released its financial results for the fourth quarter of 2022, reporting a revenue of $7.85 billion, up 1.9% year-over-year. Although it lost 200,000 subscribers in Q1 and nearly 1 million in Q2, it had managed to bounce back adding 2.4 million new paid users in Q3, and the upward trend continued into the last quarter when it gained 7.66 million new customers, with the total number reaching 230.75 million, up 4% Y/Y.

Also Read: Netflix Revenue and Usage Statistics

During its Q4 earnings call with analysts, Netflix executives also provided some details regarding its ‘’Basic with Ads’’ tier that was first launched in November and costs 6.99$ per month, $3 cheaper than its ‘’Basic’’ plan. The company chose Microsoft as its advertising partner last year, and L’Oreal Paris, NYX Professional Makeup and AB InBev are among the companies testing its new solution.

“I just want to emphasize, it’s a multi-year path,” said Spencer Neumann, Chief Financial Officer of Netflix, during the call. “We’re not going to be larger than Hulu in year one.”

Hulu started its journey as an ad-supported platform in 2008, and introduced its ad-free plan in 2015. According to Netflix, almost half of Hulu subscribers are using its ad-supported plan.

“It is a multi-billion dollar business for [Hulu]. That is U.S.-only — so lower reach, lower engagement than us,” Neumann added. “Given what we have seen and the engagement on our ad plan…we would expect to be as large or larger over time.”

He said that the company wouldn’t have made an entry into the ad business if it didn’t believe it could eventually generate 10% or more of its annual revenue. 

Also Read: US advertisers spent $3.3B on OTT ads per quarter since Q4 2021

In addition, Netflix’s new co-CEO Greg Peters said that the ad-supported plan’s engagement rates are comparable to those of its other plans.

“So that’s really a promising indication, it means we’re delivering a solid experience and it’s better than we modeled and that’s a great, sort of fundamental starting point for us to work with,” he said.

However, Digiday reported in December that some advertisers were taking their ad money back as Netflix missed its ad viewership promises.

Meanwhile, the WSJ reported in September that Netflix was expecting the new tier, which hadn’t been launched then, to lure 4.4 million viewers by the end of 2022, and 40 million by the third quarter of this year.

While the company didn’t reveal the number of its ad-supported subscribers, the plan was its least popular tier in November when it was first launched, according to Antenna.