Netflix’s quarterly earnings showed a surge in subscribers, a promising result in the company’s efforts to increase its user base by cracking down on password sharing, and by introducing lower-priced ads tier plans. But the ad-revenue mountain is still a tall one to climb.
In its July 19 letter to shareholders, Netflix said current ad revenue “isn’t material” for the company. In an earnings call, company’s chief financial officer Spencer Adam Neumann indicated that the ad business isn’t expected to become significant this year.
The streamer is intensifying its efforts to increase the share of subscribers who opt for an ad-supported tier, introduced less than a year ago, which generate higher average revenue compared to ad-free subscriptions. Netflix cut the cord on their basic plan, the least expensive ads-free plan which allowed users to consume Netflix on one screen in 720p quality, for new members in the US and UK, two major markets. The company had already scrapped it in Canada last month.
To increase the offer for advertisers, Netflix will make it possible to target ads around its top 10 performing titles each day. Co-CEO Greg Peters called it “a creative way to think about how we give advertisers a different way to have essentially a guaranteed participation in the most popular shows, most popular films at any given moment on Netflix” during the company’s second-quarter earnings call.
Building an ads business from scratch isn’t easy and we have lots of hard work ahead, but we’re confident that over time we can develop advertising into a multi-billion dollar incremental revenue stream. —Netflix’s shareholder letter
$8.1 billion: Netflix’s second quarter 2023 revenue
5.9 million: Net additions to subcriber base in the quarter ended June 30, 2023
Nearly double: The growth in ads plan membership versus the first quarter of the year, albeit on a small base
8%: How much Netflix’s stock fell in after hours trading
100+: Countries Netflix launched paid sharing in in May
20%: Share of Netflix signups that opted for the basic plan in June 2023, down from 41% in July 2022
To grow its gaming business, which launched in November 2021, Netflix has made a string of studio acquisitions and upped hiring in the division. Analysts will be watching whether Netflix’s gaming promise will materialize, and whether the streamer can achieve success in a space where tech behemoth like Google and Amazon have failed to make a mark.